How are you supposed to accurately price your listings in today’s shifting market?
In a hot seller’s market, you could use the highest, most recent comparable sale, add a little (sometimes a lot), and still sell the home with multiple offers. The market decided just how much over the list price it would sell for. If the house didn’t appraise for that price, then the winning buyer would have to make up the difference to the seller with cash out of pocket. Those were the rules you learned to live with, and in many ways, that made pricing easier, not harder.
Today, you have more inventory competing with your new listings, a generally negative news cycle about housing, agents still using ‘seller’s pricing’ to determine list price and listings expiring instead of selling. As a result, many agents are finding it more challenging to settle on a price that nets their seller the most money but isn’t so high that it lingers on the market, destined for the expired bin.
The price questions you’re struggling with are:
How can you recommend a price that is realistic but not so high that it won’t sell?
How can you be honest and accurate without talking the seller out of listing with you, when you just know another agent is willing to price it like it’s still a super hot market?
What happens if you get it wrong? How do you get it priced right eventually without losing the listing in the meantime?
We will drill down on the answers to all of your pricing questions. Pricing accurately separates the best from the rest!
A Comparative Market Analysis (known as a CMA), is the report agents and brokers create to estimate the value of a subject property, by comparing it to similar homes which have recently sold.
You and the seller determine the list price largely based off the CMA. Generally, a home that is priced correctly will sell very close to the list price. Don’t throw the dice on the price. It can cost you the listing and cost the seller time and money.
Your pricing will be much more accurate when you study and preview the sold comps, the pending sales, and the active competition.
This data will show you what actually sold and closed, what sold over the competition (pendings) and what your subject property will be up against (actives). Your listing has to make sense in all three categories! The sold homes hold the most weight, of course!
This also gives you a competitive advantage in front of potential sellers. You may be the only agent who bothered to preview the competition!
Your comparable sales, pending sales and active sales must match your subject property as closely as possible in the following categories:
- Square feet
- Basement / slab / crawlspace
- Acreage, using similar land as much as possible
- Style (2 bedrooms and ranches usually sell for more than split levels or bi-levels)
- School District
A home (or anything for sale) is ultimately worth what the market is willing to pay for it.
It has nothing to do with what the owner paid for it, what they owe on their mortgage or anything other than comparable sales and market conditions.
When you use the Seller Pre-qualification Script, you’ll ask the seller what price they have in mind.
They almost always will be higher than your CMA. Your script is, ‘$550,000… that’s interesting. How did you arrive at that price?’
The seller may know of comparable homes in the neighborhood that were pocket listings, private sales, For Sale By Owners or other sales you didn’t see online. They may tell you they just had the home appraised. They may have no reason except what they ‘want’ or ‘need’ it to be worth. It’s valuable to discover where their price is coming from.
Ultimately, if the sellers have to sell, you have to take the listing. Even if you have to get a price reduction, the home will be selling. Be the listing agent when it sells, not the agent it expires on!
Know the subject property and the micro-market where it’s located.
Not all towns, suburbs, subdivisions or MLS codes act the same, even within your own market. Sometimes the actual style of home can help or hurt the price it will fetch.
Just because your city has average days on the market of 50 and a list-to-sell price ratio of 98%, does not necessarily mean your subject property will. You need to know the big-picture figures, but you must price the home based on your micro-market.
Knowledge equals confidence and ignorance equals fear. That fear manifests in being fearful that you don’t know enough to price a home confidently. That can lead to you not being proactive in looking for listings, caving to the seller’s pricing or losing to more well-prepared listing agents.
Consider the cost per square foot of your comparable sales.
This is more important in certain markets than others but should be a factor for all CMAs. If the average cost per square foot of the comparable homes is $300 per square foot and your seller wants to price it at $450 per square foot, there better be a good reason for that, otherwise, you are very obviously overpricing.
Compare both cost per square foot and days on the market for your active comparable listings, pending and sold. This will show you the trend. Are days on the market getting longer or shorter? Are homes selling closer to the list price or well under the list price?
Ultimately, your success in pricing is greatly dependent on your knowledge of the marketplace. Knowledge equals confidence and ignorance equals fear. The more you know before you go to your next listing appointment, the more likely you are to not only take the listing but to get it sold too. There’s no better way to receive repeat and referral business than doing a fantastic job for your sellers! A ‘sold’ sign is priceless!
Tim and Julie Harris host a podcast for Realtors called Real Estate Coaching Radio. They’ve been professional real estate coaches for more than 20 years, helping agents succeed in many different market conditions.