The theory of “black swan events” is a metaphor that describes
hard-to-predict events which result in a shock to the system and disruption
of the status quo. These unforeseen events often result in immediate shocks to markets, political structures or
societal norms.
In real estate, a black swan event happens when a home sells
well above or well below the established range of values for a
neighborhood. Sometimes there’s a good reason for the range-breaking
sale… and sometimes there is not. I call these “black swan comps”.
I recently listed and sold a gorgeous, impeccably-updated
newer home at an all-time high price for its neighborhood… a black swan comp since it closed $24,000 higher than any other previously closed sale and more
than $70,000 above a similar square footage home which sold across the street only a few weeks earlier.
From the beginning, as my sellers and I discussed strategy and how to competitively price the home, our number one topic of concern was with the appraisal. I
made it clear that getting this home to appraise for a financed buyer anywhere
near our listed price was going to be a significant challenge, and that the
appraisal was going to be moment of truth inside this transaction.
Unless… we could find a cash buyer, in which case we might
be able to sidestep an appraisal altogether.
Most appraisers are cautious by nature, especially in a
rapidly-appreciating market, and so even though this home had remarkable
updates, including reclaimed wood flooring, custom kitchen and bath remodels
and extensive landscaping improvements… persuading an appraiser to push up so
far above other closed sales in the area was no sure bet.
Things rarely go as planned in real estate, but in this
case, we caught lightning in a bottle… and found a full-price cash buyer the
first weekend we were on the market.
Long story short, the deal eventually closed at full price, which led to some
very happy clients, a very happy listing agent, and lots of very happy
neighbors.
It’s unlikely that another home is going to sell above this
number any time soon, because quite simply, I don’t think there’s another home
in the neighborhood so fully and beautifully upgraded. And so the closed
price on this home is now a data point with a limited shelf life - probably six
months, which is about as far back as most appraisers will go in searching for
area comps.
It’s entirely possible that the inclusion of this black swan
comp will add $15,000 - $25,000 to the value of other homes in the
neighborhood…. but only for as long as this home sticks on the grid as a
recently closed comp.
Which is why it’s important for brokers to exercise supreme diligence when sifting through recent sales in a neighborhood.
When a great home sells for a record price, there’s a window
of opportunity for everyone else to “leverage up” off the value of that closed
sale. And so an experienced listing agent will call this to the attention of
potential sellers so that they do not miss the opportunity. It might mean
pushing things forward and listing a home a few weeks earlier than planned, but
if it adds five figures to the market value, it may well be worth it.
Six years ago, we saw the opposite effect… when one
distressed short sale or bank-owned home would undercut the value of other area
homes by thousands of dollars. Smart buyer agents would try to leverage
down off this negative black swan pricing for as long as the home stuck on the
grid of recent sales, while listing agents pulled their hair out trying to wish
away the bad comp.
The bottom line is that timing, strategy and market knowledge count for a lot in real estate. There are single, short-term events that can
temporarily add or shave tens of thousands of dollars to or from the value of
homes in a neighborhood.
Good agents can identify these black swan events and use
them to the benefit of their clients. Less experienced agents often miss
them (or willfully ignore them), and as a result, cost their clients a lot of money.
