Price Elasticity: One Piece of Real Estate Jargon Consumers Should Understand

How much is your house worth? Sounds simple, but that can be a complicated question. And it has no exact answer.

Why? Because regardless of the market, hot, cold or stable, it’s important to understand that real estate values are not a single number. It’s a range.

That price range is what real estate experts and economists refer to as price elasticity. And price elasticity is one little chunk of real estate jargon worth understanding. Why? When buying or selling property it can mean tens of thousands of dollars, or more, left on the table, if you don’t.

Bottom line: the value of your home can swing by 5 percent to 15 percent in any given market.

To figure that range out, you need a standard element of a real estate appraisal — the price of comparable homes in your neighborhood.

But don’t be fooled into thinking that’s all that you need. After gathering all of the relevant real estate data, consider the many details of those comparable homes.

Digging into the Details

A home in your neighborhood that is about the same size and age as yours might cost, say, $250,000. But maybe your house has a nice view or a pool and the comparable doesn’t. That’s where relying on price per square foot will result in a misleading, low value indication for your home. That’s why appraisers adjust the comparable’s sale price upward to give a more accurate indication of your home’s value. But it’s also important that your real estate agent can factor those elements in with real data to back it up.

Push your real estate agent for more than just a competitive market analysis — or CMA, and average sale prices per square foot. Look for an agent who understands all the variables that impact price elasticity. These variables include macro-economic conditions, such as interest rates and housing supply/demand, competing real estate listings for sale, opportunities to prepare the home to appeal to the buyer persona most willing to pay top dollar, as well as targeted property marketing to expose the listing to the greatest number of qualified buyers in the persona willing to pay top dollar.

That’s a lot of moving pieces. But a smart, well-trained real estate agent with a proven selling system that proactively manages the hundreds of variables in the home selling process, can break it down. There’s more. The best agents double-check their work by personally inspecting the current real estate listings for sale your home is competing against, as well as talking with the listing agents, and in some cases the buyer’s agent, who were involved in the comparable closed sales.

This is an important step that is too often overlooked. But from the seller’s perspective, it’s reckless to not confirm details of comparable sales with the agents involved in the transaction. An inaccurate sales comparison analysis could cost a home seller thousands of dollars.

And beyond recent closed sales, it’s important to review pending sales and current listings to further inform the list price that maximizes your net proceeds from the sale.

Realtors with a proven selling system are trained to look into comparable sales to see if there are significant differences in construction, design, landscaping, parking and other detailed elements that could explain why your home is worth significantly more or less than those it’s being compared to.

With that data in hand, a real estate agent can adjust upward or downward the price range for your home, identify the types of people most likely to pay the top end of that range and then prepare and market the property appropriately.

And that’s key to getting top dollar for your home.