An Accurate Pricing Strategy
An accurate pricing strategy is the single most important decision you will make to sell your home fast and for top dollar.
What is a CMA?
CMA is real estate shorthand for “Comparative Market Analysis”. A CMA is a report prepared by a real estate agent providing data comparing your property to similar properties in the marketplace to help you develop a pricing strategy.
What are comparables or "comps"?
“Comps” are recently sold properties that are similar in size, location, and amenities to your home. These properties help both your Realtor and an appraiser determine the fair market value of a property.
Price your property too low and it will sell and probably even sell quickly. However, you will lose money that is rightfully yours. Price the property too high and it will not sell. Your property will
continue to cost you money in the form of interest, repairs, and upkeep. More importantly, you may experience severe mental and emotional stress that can be much more costly in the long run.
What is Market Value
Home Buyers Comparison Shop. Why is this important to remember? Because the “market” sets a home’s value …
- Not the Assessor
- Not the Appraiser
- Not even the home seller
Competing Listings are important because buyers will look at all available listings to see how your’s compares. But the real marker for pricing is:
- SOLD Listings
Sold listing tell us what home buyers in today’s market are willing to pay for a house.
What Influences a Home’s Value?
What DOES Influence Value?
- Current Economy and Jobless Rate
- Mortgage Rates
- Availability of Financing
- Marketing Strategy
- Current Buyer Demand
- Your home’s age, condition, size, etc.
- Number and prices of competing homes
- SOLD prices of similar homes
What DOESN’T Influence Value?
- The price you paid when you purchased
- Repairs and replacements you have made
- The price of the home you are purchasing
- Your need for extra money out of the home
How Do You Know if You Priced it Right?
The right asking price is determined by pinpointing exactly where home-buyers are in the current market.
- Priced Right – Sold within 4 weeks
- 2-4% High – Showings but no offers
- 4-6% High – Scant showings, drive-by’s
- 6+% High – No calls, no showings
Accurate Pricing Brings the Highest Price
A property that is priced correctly garnishes lots of showings and offers within the first few weeks.
Properties that are over-priced sit on the market and eventually sell for less.
No question that of all the mistakes we can make, mis-pricing your home is the most harmful and costly.
Good Staging Can Increase Your Sales Price while Decreasing the Time it Takes to Sell.
Understanding Accurate Pricing
What Affects Value?
Many things affect the value of property. Buyers decide what to pay based on market conditions and not what the seller whats or needs. Available buyers compare one property against all other alternatives.
Principle of Supply and Demand
When there is high demand for housing, the price of homes rises. When there is a large supply of homes but not enough demand for them, the price falls. Area growth, employment, and interest rates all effect the demand for homes.
Principle of Regression & Progression
When a property is surrounded by more expensive properties, its value will rise. Conversely, when a home is surrounded by lesser homes, its value will decrease. Hence, location, location, location.
Principle of Contribution
The contribution of an enhancement must exceed its utility in order to increase value. FOr example, a new water heater simply continues to supply hot water and thus does not increase the value of the home.
Principle of Substitution
Value is determined by what a purchaser gets out of a product, not by what the owner has invested into it. A well provides culinary water to a home, no matter how much it cost the owner to dig it.
Window of Opportunity
Once active buyers have seen all available inventory, they watch every day for new listings. The first couple of weeks on the market is a “window of opportunity”. A mis-priced listing misses out on many of these available buyers.
The Pricing Pyramid
To attract the greatest number of buyers and sell as quickly as possible, set your asking price at or below fair market value. At 5% – 7% over value, very few, if any. buyers will be interested in your property and no offers will be made.
Reaching the Right Buyer
A mis-priced property is exposed to the wrong buyers. Ones that would be interested won’t see it while the ones who see it, won’t desire it. When competetive in style, features, size, condition, and location the “right” buyers see it.
Don't Become Shopworn
The perception of a property that stays on the market for longer than average is that it is “shopworn”. Much like merchandise in a store that has been looked over but not chosen, your property will likely have to be discounted to sell.
Why not price high and lower my price if needed?
That’s a strategy that sounds good – but, in fact, is more likely to result in a lower price. Here’s why:
The first few weeks a house is available is when it will have the most activity because of buyers and Realtors waiting for new inventory to hit the market.
If a house is overpriced, it has to compete with houses that are correctly priced at that higher price level, which are almost certainly larger or have newer/more features. Consequently, your property will likely be rejected by buyers in the higher price range and not seen by the buyers who could afford it.
As a result, an overpriced home is unlikely to attract an offer. Worse yet, those first couple of weeks are when real estate agents review newly listed properties and form a lasting opinion. When it is overpriced, they usually don’t even bother to show it to their buyers so as to not offend them. Buyers are always looking for the best priced home with the features they are seeking.
Inevitably, the seller will have to drop the price – and may end up with an even lower than market price because buyers will wonder why the house has been on the market so long and may factor that into their offer.
This frequently asked question often leads to a common pricing mistake that seller’s make. Many sellers believe they should price their home several thousand dollars higher than what a top Realtor suggests to leave room for negotiations and low-ball offers.
A well priced home will sell quickly and will sell for close to the listing price. There is no need to leave room for negotiations, as today’s home buyers are very well educated due to searching for months on the Internet prior to looking at homes in person. A seller who prices their home high to leave room for negotiations can actually be costing themselves more money than if they price it to reflect the suggested market value.
How is a Competitive Market Analysis (CMA) researched?
CMA is real estate shorthand for “Comparative Market Analysis”. A CMA is a report prepared by a real estate agent providing data comparing your property to similar properties in the marketplace. We will consider your active competition, properties that are currently “under contract”, and, most importantly, sold comparables.
The first step is to inspect your property. Generally, this inspection won’t be overly detailed (we will not going to crawl under the house to examine the foundation,) nor does the house need to be totally cleaned up and ready for an open house. It should be in such a condition that we will be able to make an accurate assessment of its condition and worth. If you plan to make changes before selling, please let me know during this initial inspection.
For the next step we will obtain data on similar properties in size, age, features, and location. These are called comparables or “comps” for short. This data is usually available through MLS (Multiple Listing Service), but we also seek properties that are on the market or have sold without being part of the MLS.
This will give us an idea of how much your property is worth in the current market. Please note that the CMA is not an appraisal. An appraisal must be performed by a licensed appraiser.
Though no home may be identical to your own, educated guesses regarding the value in the differences will be made and added or subtracted. For example, a home like yours but without a garage, will get the value of a garage subtracted from its price in this analysis.
Picking the right comparables creates an accuarte price range. Things looked at include:
- Type & style of home: Condos cannot be compared to houses, and a one story ranch is hard to compare to a two story colonial.
- Neighborhood & school district: The CMA will show comparables in the same or similar neighborhood and school district as your home.
- Date of sale: The market changes daily, so more recent comparables are best. Usually we will not go back more than a few months in our search.
- Location, location, location: Views, waterfront access, and even the type of neighborhood a home is in all factor into the home’s value.
- Square footage: The comparables should be within 15 percent of your home’s square footage.
- Number of bedrooms and bathrooms: Comparing your property with a property with more bedrooms is usually fine. However, properties with one and two bedrooms do not compare well with 3 to 5 bedroom properties.
- Age of home: We strive to stay within 10 years older or newer than your property for a fair comparison. Styles, components, and the quality and condition of systems have changed dramatically over the years.
- Condition of home: A fixer-upper cannot be compared to a well-maintained or a recently remodeled home.
- Lot size and usability: Lot size is significant only when the difference is big. For example, a home with an acre of land can’t be compared to one with a small back yard.
CMAs are not only for prospective sellers. Buyers also request a CMA for properties they are seriously looking at to determine whether the asking price is a true reflection of the current market.
Remember, pricing accurately from the day your home hits the market is the smartest way to sell in a reasonable amount of time and at the right price.
We don’t want to underprice your home and give it away but at the same time we don’t want to overprice it and scare the buyers away
Why is my assessed value different than your CMA?
Assessed value is an “estimate” by the taxing authority and is not the same as market value or appraised value.
There are many homes that could be sold for significantly more than an assessed value and others that maybe sold for significantly less.
The assessed value of a home is used for the purpose of taxes in your local municipality. The assessed value of a home is multiplied by the local tax rate to determine what your yearly taxes are. The assessed value has no impact on how much your home is worth to a potential buyer in the marketplace.
Why is my appraised value different than your CMA?
The appraised value of a house is a certified appraiser’s opinion of what it’s worth, while the market price is the price at which the home may sell within a reasonable amount of time. That might actually be higher or lower, depending on current market conditions.
Appraisals are performed for lenders. The purpose is to justify the sales price so that the lender feels they are making a solid investment since the property is collateral for the loan.
On appraisals, most weight is given to historical data—sales that have closed in the last three or four months. They also consider if the local market and neighborhood are appreciating or in a decline.
Appraisers try to make allowances, but because they have rules and guidelines to follow, there are times when they cannot—especially in dealing with multiple bidding situations and in areas where there are fewer recent sales—both of these situations could potentially be different from what the past data indicates.
Why is an Internet valuation different than your CMA?
Internet sites such as Zillow do not have accurate data in which to build accurate price estimates. Utah is a “non-disclosure” state, which means home sales prices are not available to internet sites. The Realtor MLS is the only source of sales prices in Utah and you must be a Realtor to access the MLS.
When is it time for a price reduction?
If our pricing strategy is accurate to start with, then you won’t have to. But if after 30 days if your home is still on the market, it is time to review the amount of activity on your home.
The number of showings and feedback we have received will tell us if the pricing strategy was realistic enough to believe that an offer is likely in the near future or if an adjustment should be considered.
When your home has languished on the market for weeks, we will need to engage a fresh group of shoppers with a price reduction.
What are the pricing "do's"?
DO make a list of the house’s special features and any upgrades you have completed. Remember, replacing or repairing worn-out or broken-down systems such as the furnace, A/C, water heater or kitchen appliances is part of the routine maintenance and upkeep of a property.
DO look at the most recent sales for homes similar to yours. We have accurate and up-to-date information for you to consider.
DO step back emotionally and prepare mentally to let go of your property. Once a house hits the market, it’s time to stop thinking about your property as a “home” and start thinking about it as a physical asset competing with other similar assets for the attention of buyers.
DO tally up estimated expenditures. Manage your expectations of any potential profit from the sale by calculating net proceeds. Items that usually affect the seller are any remaining mortgage obligations, unpaid property taxes, real estate commissions, repairs, closing costs, and moving expenses.
DO consider offering purchase incentives such as a home warranty, throwing in the washer and dryer or paying part of the buyer’s closing costs.
What are the pricing "don'ts"?
DON’T be emotional and argumentative about price. If you insist on asking higher than the current market price, understand your property may end up selling for less than fair market value after the price reductions necessary to rekindle interest.
DON’T assume you can price your home based on the amount you paid or how much you want out of it. What matters is its value now, under current market conditions, considering its condition, age, size, and how much similar homes have sold for in the last few months.
DON’T assume that offering a cash discount for a needed repair is as effective as getting the problem fixed. Buyers often don’t want to, or have the money to, deal with the hassle of repairs and would prefer a home in working order.
DON’T expect that every upgrade or remodeling expense will provide a proportionate increase in your listing price. If you’re undertaking projects specifically for a sale, take care to research which ones will provide the most bang for the buck in your area. Buyers everywhere love nice kitchens and baths, and it’s interesting to note that limited makeovers of those spaces often have a better rate of return that full-scale redesign or renovation.