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.
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