In the real estate business, determining the market value of a property is one of the most important things we do. Interestingly enough, market value is not necessarily a mathematical formula. Rather, it is the price that a buyer is willing to pay that a seller is willing to accept.
Value is determined (or shall I say “best guessed”) by looking at a number of factors:
- External characteristics. Curb appeal, exterior condition of the home, age of the home, lot size, and home style.
- Internal characteristics. Size and number of rooms, construction quality and condition, heating systems, energy efficiency.
- Location. How desirable is the neighborhood?
- Supply and demand. The number of buyers and the number of sellers in the area.
- Comparable sales. What similar homes in the same area have sold for recently.
Lately I have had a number of discussions with both clients and other agents about how to determine the market value of a brand-new home when there have been very few new homes that have sold in the past few years. Most buyers and sellers want to rely solely on “comps”, however when there are none (or only one or two) this factor has to be taken out of the equation. Then we have to rely on the other criteria listed above, along with two additional factors: replacement cost (how much it would cost to build the exact home, along with the cost of the land) and time. (A buyer might be able to replicate a property for less than the asking price, however they will have to wait a year or two before they can use the home.)
Since construction costs went up so considerably in the past few years, it’s no wonder that the few new homes that are currently listed for sale are so much more expensive than past sales.
Jordan put together the chart below showing how few new homes have sold in the past few years. Since the recession, speculative building has been a risky endeavor, so builders stopped bringing new product to the market, especially the more expensive single-family homes and townhomes in Sun Valley, Ketchum and Elkhorn.
The chart also shows why our inventory remains low, since builders have not been supplying new inventory to satisfy demand. It’s interesting to note that the last real influx of new inventory was 22 years ago.
If you are interested in the market value of a property you own, don’t hesitate to reach out. We are always happy to provide you with a free market analysis.
Our 2022 Annual Report is complete and in the mail to those of you who have requested hard copies. Click here to link to the report online.
Wishing you all a fantastic weekend!