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When Do You Want To Move? The Science Behind The List Price

By
Real Estate Agent with Karen Parsons-Fiddler, Broker 949-510-2395 BRE# 01494165

When Do You Want To Move? The Science Behind The List Price

 

Picking a listing price for your home might seem like pulling a number out of thin air. Nothing could be further from the truth. I use a very simple system when I present data to my sellers and help them see the scientific aspect of picking a listing price.

Every real estate agent should have access to the same MLS data. One of the first things we learn is how to find comps (comparable listings) for our clients. This is important not just for sellers, but buyers....so they don't write an offer too high for the value of the property. 

Step One: Gather the correct Comps

The comps for sellers are properties with similar square footage and upgrades within either the same development, city or geographical area. In other words...would these homes be considered "competition" for the potential buyer of their home? We look at both the active and back up properties as well as the sold properties.

Step Two: Calculate the Monthly Inventory of Comparable Homes

Once I have the properties collected over the past 90 days. We can see how many homes are listed and how many have sold. What we want to know is how long it's going to take to sell our listing. In other words...how many months of inventory do we currently have in our market which is a comparable property to our listing. 

The months supply is calculated by dividing the current supply of listings by the average amount of homes which have sold in one month. 

For example: There have been 27 homes on the market during this time (90 days) and 11 have sold.

11 sold homes divided by 3 months give us an average of 3.6 homes selling per month.

16 active listings divided by 3.6 (the amount of homes selling each month on average) equals 4.44 months of inventory.

Does this make sense? Good! So now how do we use this information to allow the seller to make a good decision?

Step Three: Determine the List Price 

So now that we know how long the homes are taking to sell, we can determine our price position. When does the seller want to sell is key in this determination. Does the seller already have a replacement property identified? Are they relocating? Is this an urgent move or not really?

I will show my sellers all the active listings placed in order from lowest listing price to highest. If we know that it's taking about 4 1/2 months for a listing to sell and  are selling per month, and we want to open escrow this month? Then we need to be in one of the top one third of the positions in that list. 

Remember these are comparable properties. Of course we also adjust for upgrades, lot location and size, all the unique aspects of the listing. We can also use more or less months based on the time of year and type of market (are prices increasing or decreasing). But this gives you a scientific snapshot of the market. 

If the seller does not need to sell right away....or would move if they can get a specific price, then they might choose to price it a little lower in position. This data is fluid, so we also continue the discussion as there are new listings and new sales. 

Choosing a list price does not need to be a mystery. Working with my sellers, I give them the facts and let them decide what makes sense, based on their goals and needs. 

Comments (18)

Mike Rock
Complete Design - Granite Bay, CA
Granite Bay Luxury New Construction...For Less

excellent formula and thinking. we find the trouble in "adjusting" for lot, location etc.... thats the rub for us. and age....what would you think the "age difference" would be..how much %  say 20 years old versus new never lived in??

Aug 23, 2015 05:13 AM
Karen Fiddler, Broker/Owner
Karen Parsons-Fiddler, Broker 949-510-2395 - Mission Viejo, CA
Orange County & Lake Arrowhead, CA (949)510-2395

Mike: Those are all things which go into picking the homes. Age is not a huge factor in our market nor is lot size, they are normally pretty similar. But in Lake Arrowhead, my secondary market...these are all aspects of chosing the correct comps. 

Aug 23, 2015 05:15 AM
Alan May
Jameson Sotheby's International Realty - Evanston, IL
Home is where the hearth is.

gathering the correct comps can be an art form.  it's not merely the matching 3br/1.1bath... you have to use the comps that any buyer might use.

they might consider a townhome a viable option to a single-family-home.  or a decent condo with some serious outdoor space might work too.

this is where an agent's experience in the market, comes in handy.

Aug 23, 2015 05:22 AM
Karen Fiddler, Broker/Owner
Karen Parsons-Fiddler, Broker 949-510-2395 - Mission Viejo, CA
Orange County & Lake Arrowhead, CA (949)510-2395

Alan: you're so right. In my market, townhouses would not be considered comps, but I can see why they might in other areas. 

Aug 23, 2015 05:23 AM
David Gibson CNE, 719-304-4684 ~ Colorado Springs Relocation
Colorado Real Estate Advisers LLC - Colorado Springs, CO
Relocation, Luxury & Lifestyle residential

Karen,

You hit the key principles in the last paragraph. We have to do two things:

# 1 We must work with our sellers.

If we determine the price or push our opinions on the seller, we have set ourselves up to be constantly behind the eight ball as the sellers over and over again use the dreaded phrase – “you said.”

# 2 Give them the facts and let them decide what makes sense, based on their goals and needs.

Sellers start out with all kinds of ideas that are rarely based on true facts. They “heard” that the neighbor down the street got $50,000 more than they actually did, etc.

 

And the facts are not facts until the seller buys into them.

Aug 23, 2015 05:30 AM
Debbie Gartner
The Flooring Girl - White Plains, NY
The Flooring Girl & Blog Stylist -Dynamo Marketers

What a smart and logical approach, Karen.  Love it.

Aug 23, 2015 05:41 AM
Kathy Streib
Cypress, TX
Home Stager/Redesign

Karen- it's easy to understand when you read your post.  I don't envy any agent their job when you're dealing with properties of varying sizes and design in a community.  This happened with a friend recently and the agent went above and beyond, in my opinion, to give my friends a good idea of what to expect. 

Aug 23, 2015 06:15 AM
Thomas F. Scanlon
Borgida & Company P. C., CPA's - Manchester, CT
CPA, CFP

Karen Fiddler, Broker/Owner - Well done. Really like the three step process. As Alan May indicated there still is some art to add to the science.

Cheers,

Tom

Aug 23, 2015 07:29 AM
Chris Ann Cleland
Long and Foster Real Estate - Gainesville, VA
Associate Broker, Bristow, VA

Your process is so logical, what seller could argue with it.  Facts and figures are always the way to go.

Aug 23, 2015 08:45 AM
Nicole Doty - Gilbert Real Estate Expert
Zion Realty - Gilbert, AZ
Broker/Owner of Zion Realty ZionRealtyAZ.com

Another factor is also the time of year you are going in to. Are you headed in to your slow season or busy season. I'll price homes a little bit higher than comps say when we're headed in to Spring and Summer. 

Aug 23, 2015 09:13 AM
Karen Fiddler, Broker/Owner
Karen Parsons-Fiddler, Broker 949-510-2395 - Mission Viejo, CA
Orange County & Lake Arrowhead, CA (949)510-2395

David: Facts are pretty tough to ignore, aren't they?

Debbie: thanks

Kathy: I'm glad....I was trying to make it simple 

Thomas: there is alwasy art to every science, don't you think?

Chris Ann: I rarely find a seller is unrealistic when presented with facts and comps

Nicole: Right, as I mentioned we have to take into account season and also the type of market we're in..are prices heading up or down. 

Aug 23, 2015 09:19 AM
Christine O'Shea
Christine E O'Shea Broker - Naples, FL

Great information for sellers, Karen.  We always suggest leading the market, not following it to our sellers!

Aug 23, 2015 09:28 AM
Lottie Kendall
Compass - San Francisco, CA
Helping make your real estate dreams a reality

That's a great explanation of what needs to be considered.

When a home is unique (square footage, location, lot size, etc) and there are no recent comps, one must dig deeper. I've successfully used % appreciation for both buyers and sellers.

Aug 23, 2015 09:30 AM
David Shamansky
US Mortgages - David Shamansky - Highlands Ranch, CO
Creative, Aggressive & 560 FICO - OK, Colorado Mtg

Thats  wise counsel and I know your sellers are in good hands and have to appreciate your insight and knowledge of your market Karen

Aug 23, 2015 10:18 AM
Carla Muss-Jacobs, RETIRED
RETIRED / State License is Inactive - Portland, OR

Wonderful, basic yet impactful.  How many other properties line up is very informational.  Good post Karen!

Aug 23, 2015 10:42 AM
Raymond Denton
Homesmart / Evergreen Realty - Irvine, CA
Irvine Realtor®

11 sold homes divided by 3 months give us an average of 5.5 homes selling per month.

 

I just woke up, Karen, so my head's foggy, but shouldn't that be 3.6 per month?

 

 

Aug 24, 2015 12:36 AM
Karen Fiddler, Broker/Owner
Karen Parsons-Fiddler, Broker 949-510-2395 - Mission Viejo, CA
Orange County & Lake Arrowhead, CA (949)510-2395

Raymond Denton You are so right...guess it was me who was foggy, lol. Corrected, thank you! :)

Aug 24, 2015 11:08 AM
Wayne Zuhl
Remax First Realty II - Cranford, NJ
The Last Name You'll Ever Need in Real Estate

Good morning Karen - I love the way you took this process and broke it down to a science. It's often fraught with emotion, so it's important to explain it to clients this way.

Aug 25, 2015 12:24 AM