Inside the Situation Room [Home Values in Boulder]

To contact us Click HERE
by Osman Parvez
Do you know the most important question in real estate?

When my clients decide to write an offer,  it's time crunch time.    But before I let them sign their name on a contract to buy,  I'll help them review comparables, do intelligence gathering on the seller to understand their motivation, and discuss negotiation strategies.  It's all part of the effort to answer that most important question.      

You see, writing an offer is like entering the Situation Room.    Everything of lower priority drops off the horizon and we focus our attention on the task at hand.   My client is on the verge of making an investment decision, possibly the largest of their life.    It's time to get to work.  

The Most Important Question:  Do You Understand The Market?    

Looking for Comparable Property Sales

I'm not talking about the national real estate market, and I'm not even talking about average statistics for the City.   I'm talking about knowing the details on the most recently sold, most comparable homes to your target acquisition.   We're looking for transactions which reflect houses of similar age, condition, design, and location.

We also want to know transaction details like days on market and negotiated discounts.   We want to know if the seller made significant concessions in terms of paying closing costs, discount points, or even throwing in that dusty Porsche.   Even lot size, frequently left off the MLS (often for the smallest houses, no accident) has also become much more important since size limits were imposed in Boulder (i.e. Compatible Development).

As some of my recent clients have discovered, the most challenging segment of the market is historic homes in places such as Mapleton Hill Historic District, Rose Hill, or Chautauqua.

This is because there are FEW transactions (i.e. low trading volume) and homes become increasingly dissimilar with age (not easily equivalent).   Once we get started down the analysis rabbit hole,  it's tempting to grasp onto $/SQFT.    For a man drowning,  $/SQFT looks like a life-raft.    It's logical, concrete, and a quick heuristic.     Too bad it's also almost always misleading.   That's because small houses with functional layouts and plenty of storage are worth more than  large houses that offer neither.  In other words, square footage is a nice tidy statistic but it's not useful unless you know WHY it's higher or lower than the competition.

The Bracketing Approach to Valuation 
Look, I'm a quantitative, research and analysis driven type of guy.    Over the years, I've learned that analyzing the value of historical homes requires quantitative evaluation on qualitative characteristics.

Yes, this is the stuff that keeps me up at night.

Here are some questions that will assist a buyer qualitatively bracket the value of a target home against a limited set of comparables:

On a percentage basis, how much more is a large, build-able lot worth?      

What's the market impact of being only one house away from a busy road?   

What's the percentage premium for a house that is west of Broadway?  How about West of 9th Street?  

What percentage should you add for having views or being adjacent to open space and trails?   

How much do you discount for neighbors that are rentals or eye-sores?  Are those recycle bins full of empties?    

Is the visible deferred maintenance on the house you're considering a cosmetic defect or is it a sign of something more serious, like structural issues?    

Have previous repairs been done right or were they band-aids that will come back to haunt the new owner?


What's the value of a one car garage?  How about a two or three car garage? 

What's the value of a legal ADU?  What impact does RMX zoning have on a property? 

Does a historic landmark (plate) increase or decrease the value of the home?

These sort of questions can have a massive impact on value, and we're talking hundreds of thousands of dollars or more for Boulder historic homes.    Over a holding period measured in decades, it might not matter so much, but right now there is a significant amount of capital at risk.    Even with good answers to these questions, comfort level and gut instinct come into play.    But without asking these sorts of questions, you're unlikely to feel confident on the purchase you are considering. 

Analysis in ActionWith a very short-time to prep my buyer, I put together the following analysis last week.   It was the starting point for a discussion on value and negotiation technique - a straw-man if you will.    Ultimately, we concluded the target house was priced too far above what the anticipated negotiated discount would allow (see table in the analysis presented below).   My buyers decided that they didn't want to low-ball that far out of the ballpark and would wait to see what other inventory might make an appearance this summer.  

Since my buyer won't be writing an offer, I've decided to share last week's preliminary review of the comparables with you.    Again, keep in mind that this was the starting point to the discussion - not a firm conclusion -  and I later gained information which encouraged an even lower initial offer.    Also, to protect privacy, I've redacted (black-lined) personal information about the buyer and seller.  I've also limited the identifying information on the target house itself.   


Final ThoughtsWith every house I've helped someone buy or sell, my due diligence list keeps growing.  It's long enough at this point that I've developed checklist for our clients, helping to ensure my clients consider typical areas of concern before our window of opportunity (the inspection period) expires.   The due-diligence checklist is available to our clients who have signed a buyer agency agreement with us.

Once a property is under contract, inspections may reveal unexpected issues with the house.  These will sometimes open a minor secondary round of negotiation, but sellers are usually reluctant to offer large monetary concessions after the initial agreement on price has been reached.    In other words, you're usually better off to get the big discount up-front than expect to negotiate a significant discount over inspection issues, especially if those issues were visible, obvious, and listed on the Seller's Property Disclosure. 

Remember, whether you're buying or selling real estate, you deserve professional advice based on current market conditions.   If you're considering a real estate transaction in Boulder or surrounding areas, give me a call.    ph: 303.746.6896. ---Note: Our goal is to provide exceptional service to our clients. The ideas and strategies in this blog post are the opinion of the writer at the time of publication. Silver Fern Homes recommends careful and complete due diligence before buying or selling real estate or other investments. Consult with your professional advisers before making financial decisions. This article is not intended as legal, tax, or investment advice. Silver Fern Homes will not be held liable for investment choices derived from this article.

image:  Tiger Girl