In Part 1, we looked at the Comparative Market Analysis and what might be included in this document. You now know that a CMA takes between 3-5 hours to produce. It will include various data that can be used or misused to price your home. Keep in mind that these posts and the ensuing pricing methodology are based on current market conditions. In a strong seller's market, a different methodology and/or set of guidelines might likely be employed.
It’s all in how you look at the numbers
As you look at a CMA for your home, you will likely see ‘active’, ‘pending’ and ‘sold’ listing sheets depending on what data the prospective agent has culled. What are the most important of the group? Surely the best indication of current market action is the most recent sale or ‘sold’ prices. These prices tell you where the market of comparable homes has actually traded.
Next, look at the ‘pending’ sales data. These listing sheets tell you the price where comparable homes were listed when they went under contract. When looking at pended properties, pay attention to the market times and the original listing prices. If market times are high and original list prices are significantly lower from current list prices, we can see where/how the market is moving through time. Often an agent’s and client’s perception of market value can differ drastically from the reality of where comparable homes are actually selling.
Lastly, look at the ‘active’ listing sheets. These will tell you what prices your neighbors are listing their comparable homes for. STOP and remember this – now is not the time to ‘keep up with the Jones’! Do not play the subjective game of pricing your home according to where you neighbors have priced their property. Intelligent buyers and their intelligent buyer agents (there are some out there) will be looking at sold prices of comparable properties as the benchmarks for negotiation. It makes little difference to a buyer if your home is priced 5% less than a similar home down the street. Your home may still be overpriced in relation to where the market has recently traded. What you may perceive as value in relation to your neighbor’s home might be nothing more than two over-priced homes at an inflated price point!
Evaluate what the prospective listing agent says about price
Listen to how the prospective listing agent interprets the CMA data. Remember, there is good logic, fuzzy logic, bad logic and/or a combination of these. You are looking to the agent for a logical presentation on where the market has traded recently (the ‘solds’), to where the market has facilitated contracts (the ‘pending’), and to where the market for currently listed properties (the ‘actives’) is. If an agent’s suggested listing price is far greater than where comparables have recently sold then ask the agent where the added value has come from? Conversely, if an agent’s pricing comes in much lower than recent sold comps; ask what demerits were used in the analysis of your home.
Be objective
Most importantly, be as objective as possible. Look at the data and decide if what the prospective listing agent is telling you about price sounds realistic. By all means, do not just list with the agent that gives you the highest suggested listing price. Some agents will try to out price the competition with an inflated list price in order to ‘buy the listing’. This is an old practice that still works on many very intelligent people. The tactic appeals to a seller’s greed factor and almost always adds weeks or months to market time. It might be very charming to hear an agent tell you how beautiful your home is in relation to your neighbor’s home. You might even be told that your home is worth a lot more than comparable homes on the market. While it may be music to your ears, it will strike a sour note when your home is not attracting showings and/or offers and sits idle as the days go by. Remember, an agent is giving you their opinion of value and opinions are only as sound as the logic that backs them up.
While we hope that this two part post on pricing has been informative, it merely scratches the surface on this complex subject. Look for other posts on this topic in the future.
It’s all in how you look at the numbers
As you look at a CMA for your home, you will likely see ‘active’, ‘pending’ and ‘sold’ listing sheets depending on what data the prospective agent has culled. What are the most important of the group? Surely the best indication of current market action is the most recent sale or ‘sold’ prices. These prices tell you where the market of comparable homes has actually traded.
Next, look at the ‘pending’ sales data. These listing sheets tell you the price where comparable homes were listed when they went under contract. When looking at pended properties, pay attention to the market times and the original listing prices. If market times are high and original list prices are significantly lower from current list prices, we can see where/how the market is moving through time. Often an agent’s and client’s perception of market value can differ drastically from the reality of where comparable homes are actually selling.
Lastly, look at the ‘active’ listing sheets. These will tell you what prices your neighbors are listing their comparable homes for. STOP and remember this – now is not the time to ‘keep up with the Jones’! Do not play the subjective game of pricing your home according to where you neighbors have priced their property. Intelligent buyers and their intelligent buyer agents (there are some out there) will be looking at sold prices of comparable properties as the benchmarks for negotiation. It makes little difference to a buyer if your home is priced 5% less than a similar home down the street. Your home may still be overpriced in relation to where the market has recently traded. What you may perceive as value in relation to your neighbor’s home might be nothing more than two over-priced homes at an inflated price point!
Evaluate what the prospective listing agent says about price
Listen to how the prospective listing agent interprets the CMA data. Remember, there is good logic, fuzzy logic, bad logic and/or a combination of these. You are looking to the agent for a logical presentation on where the market has traded recently (the ‘solds’), to where the market has facilitated contracts (the ‘pending’), and to where the market for currently listed properties (the ‘actives’) is. If an agent’s suggested listing price is far greater than where comparables have recently sold then ask the agent where the added value has come from? Conversely, if an agent’s pricing comes in much lower than recent sold comps; ask what demerits were used in the analysis of your home.
Be objective
Most importantly, be as objective as possible. Look at the data and decide if what the prospective listing agent is telling you about price sounds realistic. By all means, do not just list with the agent that gives you the highest suggested listing price. Some agents will try to out price the competition with an inflated list price in order to ‘buy the listing’. This is an old practice that still works on many very intelligent people. The tactic appeals to a seller’s greed factor and almost always adds weeks or months to market time. It might be very charming to hear an agent tell you how beautiful your home is in relation to your neighbor’s home. You might even be told that your home is worth a lot more than comparable homes on the market. While it may be music to your ears, it will strike a sour note when your home is not attracting showings and/or offers and sits idle as the days go by. Remember, an agent is giving you their opinion of value and opinions are only as sound as the logic that backs them up.
While we hope that this two part post on pricing has been informative, it merely scratches the surface on this complex subject. Look for other posts on this topic in the future.
2 comments:
When it comes to pricing, how much of the process is art and how much is science? Is there ever a time when you want to price the home under market value in order to promote a price war? Inversely, is it worth it to initially try a slightly higher price, with the idea that you can quickly lower it if the market is not responding well to that higher price?
Vincent, the science in pricing comes from the actual numbers we see in the actives, pendings and solds and the statistics derived from the same. The art would be the interpretation by the individual agent/client of the numbers and how they can be best utilized in a given market situation to maximize offer prices and minimize market times. To summerize science and art in pricing: math doesn't lie but sometimes agents or clients will lie to themselves about it's interpretation.
Pricing a property at or slightly under market value can have a major positive influence on demand. In the ideal situation a seller might receive several offers at the same time. This bidding war will often lead to a sale price over list, a wonderful position to be in!
Listing at a higher price might be most effctive in a seller's market where transactions are moving fast. In essence you are 'leading ' the market and hoping the market will catch up to your higher price. We are currently not in a seller's market. In current conditions, overpricing a property is the single biggest contributor to those ever increasing numbers for market time.
Good luck and remember to be as objective as possible when looking at the 'math'.
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