Pricing Tip, Watch the Market Real-Time

One of the services Realtors offer can help sellers set their initial price for their property to be placed on the market is to prepare what is known as a Competitive Market Analysis, (CMA) for short.

They do this by reviewing the market history of like kinds of homes that have sold in the nearby area over the past 3 to 6 months. Before a house can show up as “sold” on MLS it must be a completed transaction with the new owners of record as owners of the property. In this market this can take anywhere from 6 weeks to 6 months, (if it’s a short sale) to close.  When your listing agent has determined the best asking price for you to consider, they should be able to supply you with the information they used to arrive at their number.

Once the topic of price is discussed by the Realtor and the seller, and the initial asking price is agreed to, this often becomes a "set in stone" type of conversation. As a result, it is misunderstood by the property owner that this is what their property is worth.  Contrary to this misunderstanding, a good listing agent will try to explain that pricing can be a moving target, based on a variety of reasons:

  • There may not be many or any recent sold comparables, of like kind homes that have recently sold.

 

  • The sold comparables may need a lot of adjustments to determine the true value of the seller's home.  The greater the number and dollar amount of the adjustments, the less valid the comparable becomes - appraisers understand this concept very well, Realtors, on the other hand, may not.

 

  • Has there been a dramatic or watershed event in the market recently?  Think of the August 2007 sub-prime meltdown.  Think of the October-November 2008 Economic/Credit meltdown.  Can events like this can also be positive as well, creating markets that trend up?  Think of 2002-2005 when the market was being artificially inflated.
  • Is the asking price reflecting the trends of the market as discussed above?

 

  • What are the demands of current buyers? Where is their confidence about spending money? How safe do they feel about their jobs?

 

  • Is the property competing against foreclosures (bank owned) and/or short-sales? As they sell they do and will bring down the value of the other homes in the neighborhood.

 

  • What is the competition doing?  Are your competitors holding firm on their price but not selling? Are competing property sellers lowering their prices? Did they start out overpriced?

Pricing should be looked at in real-time and regular discussions with your Realtor should take place.  What is the market doing today, this week this month not 6 months ago. While pricing adjustments should be made with care and based upon solid information, and not in a vacuum, as a seller you need to understand that markets are dynamic for all the reasons listed above and to keep an open mind as events unfold.