Recognizing Context and The Value of Subjective and Objective Criteria in Real Estate
"Is this a good buy?" or "Are prices going to go up/down?" are some of the most common questions to real estate professionals. For realtors and for homebuyers, context and the standardizing of variables weighs into real estate evaluations, answers and decisions.
Understanding the frame of reference and context for questions is paramount. The two categories of contextual criteria are objective and subjective. These are defined as:
Objective: not influenced by personal feelings or opinions in considering and representing facts.
Subjective: based on or influenced by personal feelings, tastes, or opinions.
Objective Context
Objective criteria are based on factual information, market factors, and legal zoning of uses for that property. These include data points such as:
- Sales figures
- Time horizon
- Market information
- Legal / restrictions/ zoning
Subjective Context
Subjective criteria cannot be measured, are harder to weigh, and are largely based on different points and perspectives in a homebuyer's life. Considerations include:
- How important is neighborhood
- Privacy of a remote location versus walking to town
- How valuable is school district
- What style of house is preferred
- What is most desired in a property: New home versus unique character
Real estate is not that black and white and the questions often combine different criteria. REALTOR®s can't predict the future. But market information can be used to normalize and standardize decision criteria.
Context to Restate Questions
Below are three common real estate questions escalating in difficulty. After each question, a brief discussion and revised question is stated with the new context underlined.
Question #1: Easy
What is the median sales price?
New Question #1:
What is the media sales price over the past five years?
Adding the proper objective context (the time of five years in this case) makes a difference.
Question # 2: Harder
If I remodel this house and spend $X, how much would it be worth?
This combines two areas. First, a comparison of a home that has been remodeled to gauge the level of improvements and personal tastes/style needs to be used. Second a standardization of the market must be made as no one can predict future real estate values. Providing a value in relation to today's market is the only context that can be provided.
New Question #2:
If I remodel this house and update similar to (other house), how much would it be worth in today's market?
Question #3: Hardest
Should we buy/sell today or wait?
Again, adding the proper context of future time helps (i.e. one year). But more importantly, what are some of the other objective data inputs that we can look from the past.
- Where have sales prices been over the past 10 years in that neighborhood?
- What are sales in the surrounding market (i.e. city and region) during that same 10-year period?
- What else is currently available within the similar market?
- How often do properties come for sale in that neighborhood/market?
Subjective questions really start to weigh in for the home buyer/ seller.
- What is going on in their personal life?
- What do they personally value today?
New Question #3:
Looking at the past 10 years of sales information, do you think we can expect higher/lower prices in this neighborhood in a year?
REALTOR®'s role
As a realtor, it is impossible to perfectly answer clients' subjective questions. However, our role is to help effectively guide and balance the decision-making process. This combines our own market knowledge, objective context, and supports the subjective selection context that is important to each client.
Each month you'll find access to objective market information and reports at markbpeterson.com/market-info. You can also see broader-based nine years of market information broken-down in our annual report. Working directly with a realtor, you can also get more specified market information broken down into specific neighborhoods, streets, and home criteria available to us with subscriptions to a variety of rich analytic platforms.
