I was chatting on City-Data recently about the Concept of "chasing the market", and what it means and how to avoid it. Someone made the comment about it being an "emotional result" of unhappiness with the market, and I think it brings up an interesting concept about how and why homes are priced the way they are.
First and foremost, this post has sprung from the idea of Realtors "buying" a listing. This is where a Realtor will inflate or "pad" their Comparative Market Analysis (CMA) estimate to make it look like they can get the home sold for a better price than anyone else. The goal is that once they have the listing, they can talk you down on price later.
Not everyone takes that approach, and it's becoming less frequent (It's a very good way for an agent to go busto), but there is no single uniform "standard" for how a CMA should be done, and this is wherein the differences lie.
Traditionally, 180 days is a good standard of time frame to look at comps. THIS IS NOT A STANDARD MARKET! Comps dating back past 90 days are useless, in my opinion. If we are in a declining market, why would you look at outdated sales??
To me, it's bad business for both a Realtor and their client. It may or may not be misleading, but I personally thrive on accurate, up-to-date information, and that's what owners need when determining a listing price.
ANATOMY OF A CMA
Think about the types of comps you're looking at. Are they active, expired, or sold? Here's my general rule of thumb:
ACTIVE: What your competition is priced at. This is the ballpark that your home MIGHT sell in.
EXPIRED: What you competition FAILED to sell at. You may want to look at WHY, and HOW LONG they were on the market.
SOLD: What your competition DID sell at (Remember, within 90 days!). Also, bear in mind you need to look at the closing help that was provided as well. It's not uncommon to raise a sales price to factor in closing costs, so that sold price isn't accurate without concessions factored in as well.
From there, you should be able to see a price range where a Realtor recommends you list your home. Here's where a lot of people get tripped up: If you interview three different agents, are you choosing them based off of the price they're recommending you list at? If you are, then you're probably making the biggest, and most common mistake sellers make!
You should be looking at their ability and experience! Ask yourself this:
- How many homes have they sold? - Fact is, there a REASON some agents sell A LOT more than others!
- Are they strong negotiators? - It's not just about negotiating price, but getting the deal to closing!
- Are they willing to spend money to get the job done? - Think of it as "faith in your homes ability to sell"
- Do they have a strong market presence? - Why would you pick an agent that's not WELL KNOWN?
- Are they able to address to your needs? - Your agent should customize his marketing plan to fit you!
- Are they working full time? - IMHO, you need to be full time to get the job done in a tough market!
CONVEY YOUR NEEDS
Let's say you find an agent who seems awesome when it comes to ability to sell, but you don't like their recommended price. It's simple: Ask them if they are willing to start at a higher price, rather than just picking the agent who recommends $10,000 more than anyone else does.
I know quite a few agents who are very good at watching their listings expire because they're poor marketers, and I happen to be very good at repackaging expired homes and getting them sold, when others couldn't. Part of it is reducing the price, but the other piece to the puzzle is killer marketing, so think carefully about who has the best bet of selling your home, without thinking about a "recommended price".
AN EMOTIONAL DECISION
It all comes back to "Chasing The Market". What your neighbor sold for last year is irrelevant, period. I hate to be the bad guy, but the market is what it is, and as long as homeowners deny it, they're going to continue to have their homes sit on the market.
Maryland sales have picked up in the last month! Wait, let me say that again, to clarify. Maryland SALES have picked up in the last month. Home prices have NOT. While the market is starting to perk up a touch, this doesn't mean that we're out of the woods, or even close to it. It means that there's a possibility buyers have a touch more faith in the market.
AS A SIDE NOTE
Appraisers have started to include distressed properties (i.e., foreclosures and short sales) in their appraisals, when possible.
The concern is that it underscores that IF your Realtor is including a foreclosure in their list of comps, they NEED to know what the condition was. "Needs Cosmetics" can mean an awful lot to lots of different people, and if you're going to use that as a comparison, you should know how close of a comparison it really is.
~Jonathan Benya
Century 21 New Millennium
9405-A Chesapeake St
La Plata, MD 20646
301-609-9000
301-653-8116
Waldorf and Southern Maryland Real Estate
www.teambenya.com
Think about your comments, "It may or may not be misleading, but I personally thrive on accurate, up-to-date information, and that's what owners need when determining a listing price." The comment implies realtors should know how to accurately price a property.
A later statement notes, “SOLD: What your competition DID sell at (Remember, within 90 days!). Also, bear in mind you need to look at the closing help that was provided as well. It's not uncommon to raise a sales price to factor in closing costs, so that sold price isn't accurate without concessions factored in as well.---From there, you should be able to see a price range where a Realtor recommends you list your home.” This statement is correct, concessions paid by the seller reduces the comparable sales adjusted sales price. This is about the most effort realtors spend when pricing a home.
The realtors expert opinion is given in a wide range of price. “The comps in my CMA show a recommended list price in the range of $175,000 to $215,000”, then you ask your client what they think about a starting list price. “You should be looking at their ability and experience! Ask yourself this:” Your listing presentation is poorly supported. If I list my home at $215,000 and it is worth $175,000 to the average market participant, the house will sit on the market and need several price reductions. All realtors know this is not a good thing for the seller. On the other hand if I decide to list my home for $175,000 and it is worth $215,000, I just lost out on $40,000.
Not all the ability and experience you can use trying to sell my home, is worth $40,000. The buyer might enjoy the $40,000 equity gift. I’m not trying to put you down. This is about the amount of effort most people expect out of their Realtor when it comes to pricing real estate. I am currently a Realtor, but I have been appraising real estate for ten years. The federal government expects us to value a home with 2.5%. And it’s not that hard. It might take a few hours of research, but in the same situation I can offer a well supported expert opinion to list the house between $205,000 to $210,000. Did I mention, I have market data to support this value. A value that would be warrant me an expert in any court of law. Buyers also recommend me for my ability to find good deals. Good deals are usually in the form of realtors not knowing how to price real estate.
There is no secret to pricing real estate. Realtors have most of the same information appraisers use. To price real estate accurately all you need is information on all the comparable sales and listing and the ability to make the proper positive and negative adjustments. You will be surprised how adjusting for an extra bath or a finished basement, can tighten-up your price range. If the other sale people show three sales or listing on a CMA to a client, then ask them to price their own home, I guarantee, if you can show your client that you have the ability to make market data supported adjustments to those same three sales, and can honestly give them an opinion of value…who would you choose?
Posted by: Steven | March 25, 2008 at 09:51 PM