The objective at this step is to gather the data in which you will base the listing price of the home. There are many strategies in positioning the home for sale that will be addressed in the next step. But the purpose of market research is to gather the data in which those strategies will be based.

Market Trends

One of the first steps to understanding the potential value of a home would be to look at other recent home sales in a relevant geographic area. Understanding average home value sold, price per square feet and days on market are the basics. It is also essential to be able to break the data out by existing resold homes or newly constructed homes. It is also good to know if the data was for owner occupied (homesteaded) or tenant occupied housing. Being able to see this data graphically over time provides the ability to estimate current and future trends in the market. 

RVM – Value Estimates

The RVM (Realtor’s Valuation Model) was developed coming out of the housing crisis of 2008. The intent was to design an automated data model that could provide an initial valuation based upon recent sale of similarly sized homes within a relevant geography and use municipal data to affect the valuation which reflectes any upgrades to the home.

If such amount of data is not accessible, or that the home is so new as to not have any comparable sales, an AVM (Automated Valuation Model) value might be calculated. This method is similar to many of the models utilized by a number widely known internet platforms which only take into consideration the price per square foot of recently sold homes in an area.

All models are prone to exaggerate values based upon a lack of specificity of the market factors which influence price. At least one national real estate search company found that this is not a good tool to ultimately base your offer pricing on!

For instance, the biggest factor in real estate is… location, location, location. But these models cannot factor in boundaries that make up the definition of a neighborhood. They also cannot see inside a home to determine it’s overall decor or condition.

However, this tool does provide a starting point to refine the ultimate estimation of value. 

Comparable Analysis

The next step in the Market Research effort is to identify the geographic neighborhood that closely represents the home. While many homes are similar size, age and possibly upgrades, the difference of location can reflect a significant variation in price. Home prices can vary greatly from street to street, so understanding the surrounding geography is essential.

Once the neighborhood has been defined, one needs to identify homes that were recently, or are currently, on the market. The selection should include those which are similar in square feet (to about 10%), number of rooms (especially beds and baths) and lot size.

The best method is to find a number of houses which are most similar in these aspects as well as other prominent features like having a pool, solar panels or other high dollar features. If necessary, an estimated value can be assigned to these features to compare their value with features of the house being evaluated.

The recent explosion in home appreciation had even required narrowing the defining of the term “recency” when comparing homes that have sold. In a normal market, we would compare homes sold within the last 6 months, and in some cases maybe up to a year. During the post pandemic sales cycle, appreciation was occurring so quickly that we compared homes that were sold within the last month and still having to project appreciation based upon trends of active listing prices.

Feature Comparison

Once a set of comparable homes has been identified, it is a best practice to understand the differences in features that will not only make up a variation of asking price, but also to understand its overall desirability in the market.

Buyer’s will tend to spend more to do less, within reason. For example, homes with upgraded counter tops in the kitchen and bath are more desirable, and a buyer might be willing to spend a few thousand dollars more to purchase what they see, instead of saving the money and having to upgrade themselves. This isn’t a reason to upgrade the home prior to listing it for sale, but knowing these factors will greatly assist in the listing and pricing strategy. Also, having a tool like a home selling score makes this a very simplistic comparison.

This is also where researching permits is key. Again the permits document that all of the upgrades were completed by licensed tradesmen and can be verified to an insurance entity. If a seller is advertising a new roof, but no permits are found, that list price would reasonably be expected to be adjusted by the amount of the upgrade.