When you visit the supermarket, determining the price of a bag of rice is straight forward. The store affixes a price tag to the bag.
In the case of rice, you are a price taker. If you find the price acceptable, you pay the price and take the rice.
If you don’t like the price, that’s too bad. You get no rice.
Purchasing a home is much more complicated. There’s no price tag affixed to the home.
Yes, there’s an asking price, which is also known as the listing price. However, as the name implies, it is just the asking price.
For the final price to be reached, a willing buyer and a willing seller must agree on a price through the process of negotiation.
When a seller and his or her agent put a home on the market, they will typically consider the X-Value of the home and the competition.
SRX Property’s computer system, which includes analytics software and databases, arrives at the X-Value of a home by following a strict, best practices methodology that incorporates Comparable Market Analysis (CMA). In the valuation industry, another term for CMA is Sales Comparison Approach.
In simple terms, the computer sifts through all recent transactions in the markets and looks for those recent transactions of homes that are similar to the home that is being priced.
The computer looks for comparable homes that are similar in property type, contract date, address, tenure, size (including land and built, in case of landed properties), floor level (in case of flats), type of sale (i.e., new sale, resale, etc.), and age.
The computer is neutral and considers only the facts. The computer ranks each recent transaction for similarity with the home being priced.
It is never possible to find a recent transaction that is exactly the same as the home being priced. For example, maybe the recent transaction occurred on the fifth floor but the home being priced is on the sixth floor.
The computer uses Regression Analysis to adjust for slight differences in floor level, size, and age between comparable homes and the home being valued and brings them into alignment. By making this adjustment, the computer is comparing apples to apples.
Regression Analysis also takes into account other factors that may impact the estimated fair market value of a property, including proximity to MRT and schools.
Finally, the computer takes into account general market movements by incorporating SRX Property’s family indices into the X-Value calculations.
Competition
While X-Value provides a robust market estimate of every property in Singapore, including landed homes, and HDB and private flats, it doesn’t take into account the competition at the moment the agent lists the home on the market.
A skilled agent takes the X-Value as the starting point and then evaluates the competition.
If there are many homes for sale that are similar to the home being priced, the agent will likely recommend that the home be priced close to the X-Value. It is very difficult to sell a home above the X-Value when it has no distinguishing features and plenty of competition. Buyers will go to the competition.
If there is little or no competition, then the agent may be able to sell the home for more than the X-Value. The agent will use the home’s unique selling points to justify a price above the X-Value.
Putting It All Together into One Price
It is impossible to do justice to the role of X-Value and competition in such a limited space as a newspaper column. The process of pricing a home for marketing purposes is complex and requires a skilled real estate agent to merge the science of X-Value with the nuances of marketing property in changing competitive landscapes. As such, engaging a professional real estate agent is a must for buyers, sellers, and rents.
In the meantime, whether you are about to buy or sell a property or you plan to hold onto your home indefinitely, stay updated on your home’s X-Value and the competition in your neighbourhood by subscribing to myProperty Tracker at srx.com.sg/tracker.