Part one of this series, Insanity: Doing The Same Thing Over and Over and Expecting Different Results explains how to cancel your existing listing agreement. In this post, I explain my pricing process. Part three of this series will explain out of the box marketing strategies and what is working in today's market to bring in qualified buyers.
The correct pricing strategy is the most important factor when selling a home. It's not enough to complete a comparative market analysis, agree on a price and publish to MLS. Price is so much more than just looking at what has sold in the past. Following are the steps that I use to determine the price of a home. This is not rocket science, but it is important and the information should be updated as new homes come on the market and other homes sell. Market knowledge is power and current information is mandatory.
The first and most obvious step is that I prepare a complete Comparative Market Analysis affectionately called the CMA. In this report I list all of the homes with similar square footage and room count that have sold within the past six months close to your home. Realtors often refer to these homes as "comps" (comparable homes). Then an adjustment is made to each of these homes to make it more like your home. For example if one of the homes doesn't have a pool and yours does, then we would subtract the value of the pool from the price of the comparable home with no pool. I do the same thing for homes that are currently on the market, homes that have cancelled or expired and homes that are pending sale. From all of this data I can come up with a general price for you home.
Back in the day when houses were selling in less that a week, we'd take this price and add a cushion and publish to MLS. We can't do that now! We need more information!
The next step is to determine what is happening in the hyper local market where your home is located. Real estate is local. What is happening in Arizona or Florida doesn't have much to do with California or even the San Fernando Valley real estate market. As a matter of fact, towns that are located right next to each other can be experiencing totally different trends and would call for different pricing and marketing strategies. So how do I know what the trends are?
I track the prices and number of sales for each area that I serve every month. For example, only fifteen homes sold in Calabasas during October 2007. This is a 25% decrease in the number of homes sold over the same period last year. The average home has decreased in value 7% since last year. All of these factors need to be analyzed in order to come up with correct selling price.
The absorption rate is another critical factor that I look at when determining the price. Absorption rate simply means the average number of homes sold per month over a particular period of time. For example, right now there are 209 houses for sale in Calabasas. I know the absorption rate is 23.5 (I computed this figure by dividing the total number of Calabasas sales from January 1st through October 31 into 10 months). When I divide the number of houses on the market by the absorption rate it's easy to see that it will take nine months to sell all of homes on the market right now (209 divided by 23.5).
These figures will also give us an idea of how many homes will sell next month as a percentage. This is important because it will tell us exactly where we have to be in price and condition to sell. In Calabasas only 10% of the inventory is selling each month (10% is the average for the ten months in 2007). This means that a house has to be in the top 10% price wise and condition wise. It is extremely important to know these numbers before we price your home.
Knowing the competition is another factor that has to be examined. I make it a point to look at the other homes on the market from the perspective of a buyer. This way I can determine if your home is priced in the top 10% and the condition and amenities are in the top 10%. If for some reason the condition isn't comparable to the other homes for sale, then the price has to be adjusted to reflect the condition. The only way to do this is for me to actually view homes in the same price range as they come on the market. This is why it's important that your Realtor be familiar with your town and neighborhood.
Motivation is the final factor that I take in to account when determining the price of your home. If you've already purchased a home and are eager to move then I would consider being extremely aggressive in pricing. If you'd like to move but are not in a hurry, then a slightly higher price can be used. I say this with great caution since the Calabasas housing market is in a slight decline right now. The last thing you want to do is to price your home behind the price decline and "chase the market down" every month.
Only after compiling all of this data can I come up with a realistic and accurate selling price. I then present these facts to my seller and we can usually agree on a pricing strategy to get the home sold quickly. Sometimes after a seller has a chance to digest all of this information we'll make the decision to hold off on selling the home. It's important that a seller has realistic expectations and understands that having their house on the market can be stressful and frustrating if it is not priced correctly. Many times there are alternatives, like renting out the home which may serve the sellers ultimate goal better.
This brings me to the last and very interesting tid bid of knowledge on pricing homes in our challenging market. It's trust. Trusting your agent's ability to price the home correctly and follow through on marketing. Recently, I have had sellers contact me to re-list their home after it had expired or cancelled with another Broker. Each time I have completed these pricing steps and have discussed the information with the seller. We've decided together on a new pricing structure supported by this cold hard data. In every single case, the price has been significantly less than the listing price that they had originally. What is interesting here is that these sellers told me that they would have reduced their price sooner if they would have had this information. It's extremely important that your Real Estate Agent is completing the steps necessary to give you the information needed to make an educated and accurate pricing decision.
If you would like more information on how to price your home correctly or a detailed analysis of your home, please call me at (818) 652-2937. Be sure to check out part three of this series on marketing strategies.
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