Real Estate: A Better Rule

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Last time, youll remember, I discussed the use of price per square foot” as a rule of thumb” in pricing real estate. I proved, using actual sales data, that as a standalone statistic price per foot was a fair predictor at best. 

I charted its substantial variability and calculated its statistical goodness of fit – I think I called it the R-squared thingie” – as being 54 percent (100 percent is a perfect predictor). I said that if you were only going to use one measure, price per foot was best. But I asked whether we could construct something better.

How much better a predictor can we get?

Based on MLS data, county tax records, and a check of Google Maps, we know a great deal about properties even without stepping in the front door. (People actually use front doors here. Up north, practically no one does.)

I made a database of all single family houses sold in Wilton Manors in the 12 months ending April 30, 2019, and included every variable easily accessible. So, things like square footage of house and lot; beds/baths; whether there was a garage, carport, or pool; was it a waterfront home; and its location within the Island City.

I then put my data mining software to work, to find the most important factors, and reject the rest. The results were astounding. That R-squared thingie” increased from 54 percent to 80 percent! And again, this is without making any evaluation on condition or degree of updating.

What were the key variables, and specifically how much did they matter? Well, I can tell you the three main drivers, but Im not going to give you the specific dollar weights to apply to them. I reserve those for the benefit of my clients. Daddy doesnt share the goodies for nothing.

The biggest driver is location within WilMa. I divided the city into the three neighborhood associations (west, central, east), and then used 26th Street to halve those three segments horizontally. Homes east of the train tracks, and in central Wilton south of 26th Street, sold at a substantial premium to homes in West Wilton and in central Wilton north of 26th, all other things being equal.

The second driver of note is whether it is a waterfront property. While buyers pay a significant premium for these WilMa properties, the premium is not as large as in other cities where waterfront properties might have Intracoastal access without contending with fixed bridges. No fixed bridge” access can be worth several hundred thousand dollars, all other things being equal. But in Wilton, that premium is substantially less.

The third major driver is the presence of a swimming pool. When people move to Wilton, they want to move in and jump in (to the pool). Most people dont want to hear room for pool;” they want to see the sparkling water. 

Again, this is all based on actual buyer behavior, as demonstrated through the prices buyers are willing to pay.

There are a couple other factors, but Ill save those for another time. And as I said, thats all before you consider the homes condition. For example, how much is an updated kitchen worth? Impact doors/windows? Type of flooring? 

I wonder whether an enterprising real estate geek might be able to tease effects of those factors from the sales prices. Well, who can say really.

James Oaksun, Florida's Real Estate Geek(SM), is Broker-Owner of New Realty Concepts in Fort Lauderdale. In addition to having degrees from Dartmouth and Cornell, he is a Graduate of the Realtor Institute (GRI).


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