So What's it Worth?
LAST UPDATED: 15 December 2005

So You may recall from my last article, that I am back in my cubby hole deciding whether to try another open house or wait patiently for my new business cards which will supposedly be delivered in the next two to four weeks. Two out of three wins it, and I am heading back to the trenches to meet more buyers. This time, however, I am arming myself with the newest version of the Land Development Code and the minutes of the last 10 Planning Commission meetings. As I drag the suitcase towards the office door, I hear music to my ears; my desk phone is ringing. As I answer the phone, I am introduced to one of the nicest persons I have ever met in my life, a potential seller. She asked if I could come to her house tomorrow at 3:00 PM to talk about listing her house. So excited about my first listing, I hang up the phone and realize that I forgot to get her name and address. Thank goodness for Caller ID.

The most difficult part of a Realtor’s job is pricing a property correctly so that it will sell quickly at the best possible price with the best terms for the Seller. During a listing presentation, while the Realtor is explaining his credentials and experience to impress the client and show why the client should choose him to market and sell the house, it seems that the client is usually most interested in the “bottom line.” In other words, price is 75% of the presentation and 90% of the reason a home will or will not sell.

In today’s crazy real estate market, Appraisals and Comparative Market Analyses (CMA) may be two entirely different things. What sold six months ago in the same complex or neighborhood may not be a valid comparable sale for an appraisal anymore. A local appraiser recently told me that in some instances, pending sales should be considered in conjunction with the most recent closed comparable in estimating the property’s current market value. With the recent “frenzy” in the Southwest Florida real estate market, rising interest rates, and increasing optimistic caution about the real estate economy, pricing a property is the most important aspect of our job.

In many cases, the best start to pricing a property is to have a Certified Appraiser do an appraisal. This can be used as a guide for an estimated asking price based on the current market conditions. Then, prior to listing a property, a Licensed Realtor can do a Comparative Market Analysis considering past sales and current comparable listings. Regardless of the methods used, three approaches to determining the value will be considered by either the Realtor or Appraiser: 1.) Sales Comparison Approach; 2.) Cost Depreciation Approach; and the 3.) Income Approach

Using the Sales Comparison Approach, we look at four similar properties sold in the previous six months. From the sales price, we then add or subtract for differences between the subject property and the comparable property. Then, we reconcile the four adjusted prices to determine an estimated sales price for the subject property. An interesting aspect of this approach is that regardless of the property, location, view, age, etc… the seller usually thinks his property is better than his friend’s next door. Therefore, if an adjacent condominium next door sold last week for $500,000, then Joe Seller will feel that his unit must be worth $800,000 because the wallpaper in the bathroom has been discontinued.

Using the Cost Depreciation Approach, we consider what the structure would cost to reproduce it on a similar property taking into consideration all current building codes and regulations, and then depreciate the structure based on its effective age. Here again, even though a house maybe 30 years old since Joe Seller replaced the outdoor shower head and mailbox last season, his property is basically brand new. Plus, the taxes are a lot less than the brand new house next door; therefore Joe thinks his house is worth more.

The Income Approach is used when the primary benefit of real estate ownership comes in the form of monthly or annual income. The ratio between the property’s gross annual income and the selling price is known as the gross rent multiplier. This method would be appropriate for most of Sanibel’s condominium market in the Resort Housing District. This is a difficult method to use since the values have gone up so quickly and the rental occupancy rates have not. The so-called “cap-rates” have decreased almost 50% in the last seven years. So when Joe Buyer calls from Minnesota to find that “deal” that pays for itself, we sometimes struggle explaining the cash flow proforma. To save the sale, however, we just show him the average appreciation rate over the past five years, and he soon understands that he can’t afford NOT to buy the condominium.

These methods are fairly straight forward and we can advise our clients using one or more of these methods. In most cases, buyers would be willing to pay these prices. Then why are sellers NOT willing to go along with the prices arrived at by these methods? The answer lies in the fact that Sanibel & Captiva Islands are two of the most unique places in Florida, and our beaches are some of the best in the world. In addition to the beautiful beaches, sport fishing is challenging for even the best angler, and the shelling ranks as some of the finest in the world. As we see the development along the Caloosahatchee River in Fort Myers and we sit on our beach and view the high rises in Bonita Beach and Naples, we realize we have a very special place here.

In my opinion, Sanibel is relatively undervalued compared to our neighbors across the pond. Due to recent renovations forced by Hurricane Charley and the increased value of the upgraded properties themselves, all Sanibel property values should likely continue to appreciate. Furthermore, when the barges, pile drivers, and cranes disappear from our peripheral vision crossing the causeway, you may see additional increases in our property values.

I ended up pulling an all-nighter getting ready for my listing presentation and was very nervous walking into my first appointment with my new best friend. I applied the first two approaches to arrive at a sales price for her home of 20 years. I thought I had totally “wowed” her with my sales statistics and professional presentation book I prepared the night before. When I pulled out the listing contract for her to sign, she told me I would have to leave since she had an appointment with another Realtor in ten minutes. She said she would call me within a week with her decision. I told her she could find me at my office waiting for my business cards.


Learn more about Sanibel Realtor, Broker, and full time Resident Eric Pfeifer

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