Irrationality: a tale of two houses
When I am doing a comparative market analysis, I develop a list of houses that are similar in size and location that have sold recently. Frequently, I find one that sold higher than its peers. Sometimes, there are rational differences that account for the price difference, but sometimes there aren’t.
Most of the time, the difference is in the condition. Sometimes it is an incorrect size on the listing sheet. Sometimes it is just irrational.
Here’s an example. Both of these houses are similar in size, location, and condition. Both started at about the same price: $X59,000 and $X45,000 (that price is either $759,000, $859,000 or $959,000; I do this so that I don’t embarrass a particular new owner.) But, the house with the bigger lot ultimately sold for $65,000 less. They were in the same neighborhood, same school district, same basic geography – both quiet streets, no hills or valleys, same type of house in similar renovated condition. The market histories are below.
When the market is going up, these odd over-bought houses become the anchor for price escalation. I hear listing agents say “That one on X Street just went for $X65,000.” To which I answer, “The one on Y Street was about the same. It went for $51,000 less than that. The ones of F and G Streets were in the same ballpark. Why do you think your listing is more like the X Street house?”
Have you heard the stray over-bought house mentioned as the comparable house price you should be paying? Have you been influenced by it?
House #1
Listed for $X59,900 in the fall of 2009.
Re-Listed for $X29,900 March 2010 (minus $30,000)
Price Changed to: $X99,900 May 2010 (minus $30,000)
Price Changed to: $X79,900 two weeks later (minus $20,000)
Listing Alert Flag set to: Yes
UAG, 10 days later.
SLD June 2010 $X65,000 ($94,000 under original asking price.)
House #2 was bigger house, on more than double the lot size.
Listed for $X45,000 May 2008 (X = same as #1 above)
Price Changed to: $X33,000 June 2008 (minus $12,000)
Price Changed to: $X23,000 July 2008 (minus $10,000)
Changed agents, September 2008
Listed for $X23,000 September 2008.
Price Changed to: $X09,000 October 2008 (minus $14,000)
WDN December 2008 for part of the winter
Price Changed to: $X99,000 March 2009 (minus $10,000)
Price Changed to: $X89,000 June 2009 (minus $10,000)
Changed agents
Listed for $X78,000 August 2009 (minus $10,000)
Price Changed to: $X47,500 October 2009 (minus $30,500)
4/8/2010 Price Changed to: $X29,500 March 2010 (minus $18,000)
Listing Alert Flag set to: Yes April 2010
UAG May 2010
Sold for $X99,999 June 2010 ($145,001 under asking price.)
