How Identical Properties Are Apples and Oranges, or Just Apples

I figured it was worth a call.  After all, they were out-of-town listing agents who might not have known what the usual conventions were in that part of Silicon Valley. 

To them, it would probably seem like nitpicking, and in most normal cases, it would be: their property wasn't a two-bedroom but a one-bedroom loft with a den.  The distinction seems trivial but I'd been studying comparables in this complex for a while, and in this prestigious building with only four different floorplans, true two-bedroom units (where the second bedroom is walled off) were scarce and commanded a premium.

Nope, after pulling up their MLS listing, the photos showed their property was just like every other apple in the cart, a one-bedroom loft with a den --- only priced $150,000 higher!  I had to find out what their thought process was.

Does the Unit's Pricing Strategy Depend on Someone Uninformed Coming Along?

A red flag.  They were just doing what they thought was best for their client.  "We're impressed with the knowledge of the local agents but we think this unit is unique," was the listing agent's reply before we parted our separate ways.  Maybe they promised the client they would get that price?  Maybe they believed they would price high and negotiate down?  Either way, I had to do what was best for my client.

I placed the phone back into its base station and tapped my stylus on the desk a few times as I prepared to make some phone calls and recheck the comparables in the complex.  There was a recent private sale and another property coming on the market at a price about $150,000 lower than our story's unique condo. 

But even if I had three lifetimes, I never would have predicted what our story subsequently did with his listing.

Sometimes You Compare Apples to Apples

In this complex, lofts were truly commodities --- basically all of the ones in this story were identical in floorplan and construction --- but there was some price fluctuation between comparable units.  Why?

1/  Condition (or the perception of good condition).  Making quick fixes to a home often helps the property sell faster and at a higher price.  But more often than not, condition is more a matter of perception than what you get from a formal inspection.  One property in this complex was shown with a dirty futon mattress in the loft and surface stains in the bathroom.  How well do you think this property competed with the clean and empty, but otherwise identical, unit down the hall?

2/  Upgrades.  Compare key items.  Kitchen: cabinets, drawers, countertops, appliances, faucets, sinks and flooring.  Bathroom: counters, showers, tubs, tiling, faucets, sinks, toilets and seats.  Floors: carpets, hardwood vs. laminate, tiles.  Walls: wallpaper, paint, moulding.  Stairs: railings, banisters.  

3/  Location.  Real estate isn't about location, location, location.  It's about what the location, location, location provides for you.  Penthouse and corner units provide less noise and traffic and are generally regarded as desirable or prestigious.  How desirable is the unit by the elevator when it's Saturday night in an active complex?  Is the convenience worth the trade-off in noise?  Now what about penthouse or corner units?  Would you pay more for that?

Using these three factors, you could compare most properties in this complex.  On the other side of Silicon Valley, however, there were "identical" properties that needed a little more investigation. 

Sometimes Apples Should Actually Be Treated Like Oranges

The personalities of the two properties here were completely different.  This property was bright and sunny with the daylight shining through the enclosed patio of the condominium and reflecting off the entryway mirror: the polar opposite of the one we had just visited.

It wasn't a long drive and, actually, I felt a little guilty about driving the less-than-two blocks inside the same complex to get to this other townhome, but it had been a pretty long day --- this being our fifth out of eight properties today --- and I wanted my client to take a load off his feet, even for a couple minutes.

But it's funny how light is like a breath of fresh air.  We'd just waded through the darkness of a brightly lit Sunday afternoon cloistered away by a property that just didn't know better.  The carpet wasn't doing anything to help what little light managed to meander its way through the overcast sky of trees.

No, these weren't comparable properties.  Yes, they're in the same complex and you would put the two side-by-side on a competitive market analysis (CMA), going over the features that each one had line-by-line and probably drawing an identical pricing strategy.  But after visiting during two points in the day and seeing the properties' personalities, there was no apples-to-apples comparison.  

Light you can see.  There are a number of other hidden factors you need to ask about which change the character of "identical" properties.

Hidden Factors That Affect "Identical" Properties

1/  Plumbing.  One property we saw was the lead in to the primary water mane, so every time someone ran their washer, the roar of a burst of water would fill the living room.  To make living in this unit more tolerable, the HOA limits the times washing machines are allowed to be used.

2/  Neighbors.  Another property had a unit upstairs with hardwood floors and lots of young children.  They're fun and friendly but the ensuing stampede during the mad rush for school in the mornings was inevitable.

3/  Garbage Pick-Up.  An earthquake.  The crash of bottles during hours normally reserved for slumber.  The two are surprisingly similar but one happens every week.

4/  Service and Delivery Entrances.  The beep large delivery trucks make as they back into the delivery entrances is designed to get as much attention as possible. 

5/  Gated Entrance Traffic.  The beeping of dial tones.  The ring and ring and ring followed by a casual exchange of greetings and the buzz which grants entrance.  The crash of the gate as it closes.  Bam.  Sometimes it feels like you're greeting everyone in the complex!

Sometimes Apples Fall Off the Truck

"Well, these are two adjacent units and you can combine them into a four-bedroom place," he'd said.  Yes, it wasn't one loft he had listed, but two.  And each had been priced at over $800,000 --- overpriced by about $150,000.

After about a month without any takers on either property, the two were combined as a package and were now selling for over $1,700,000, truly subscribing to the philosophy of the whole being greater than the sum of its parts.

Since that property was listed, eight other properties in the same complex have been sold on have gone into contract.  Now the two lofts are listed as two one-bedroom units with a den but they're still priced over market. 

The listing agent has a one year agreement and with rents for those units averaging $2,500 per month, the owners lose $5,000 in opportunity cost each month that goes by (for $20,000 now).

My client bought an "identical" property, including the same upgrades, relative location, etc. for $150,000 less. 

If you have an apple, what happens when you price it like a truffle?