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Denise Says: The Most Important Factor in Pricing

By
Education & Training with The Lones Group, Inc.

THE MOST IMPORTANT FACTOR IN PRICING!

(This article is dedicated to one of our readers Jo, who wrote me and encouraged me to share this information in the Zebra Report).

When you go to real estate school, the first thing you're taught is how to prepare a CMA-the Comparative Market Analysis. Traditionally, a CMA shows you how to value and estimate the sales price of homes in a particular area.

While this does provide a good exercise for the beginner real estate agent, it is sometimes an exercise in FUTILITY because the accuracy of many CMA's is surprisingly low.

Why is this? Why would a house in a $300,000 neighborhood not sell for $300,000? And why is it that every once in a while a house sells for MUCH higher or lower?

It's because of "Supply and Demand". Supply and demand are not used very often in CMA's because it's very hard to track. The only way to track supply and demand is to pull pending numbers. And as real estate agents, we are taught to look at comparable sales, not pending numbers. Using pending numbers gives you a sense of how the market is absorbing inventory on hand at a specific moment-and helps you better determine your selling price.

For example, let's say there are currently 100 listings on the market at $300,000. Last month, ten houses sold at $300,000. In this case, it's safe to say the market is running at a 10% sales ratio-a buyer's market. Likewise, if there are 100 listings on the market at $300,000 and there are 90 homes that pended the previous month, you'd be at a 90% sales ratio-a seller's market.

Even if the homes in that neighborhood sold at an average of $300,000, here's what a lot of real estate agents (and consumers alike) don't understand: They've spent too much time comparing brick and mortar and not enough time looking at where the market is at that very moment.

While brick and mortar comparables give you a ball park price range, they most certainly DO NOT show you whether or not the seller is in the driver's seat or the passenger's seat. If you can show the seller a strong seller's market, you are giving them a strong negotiating tool. Likewise, if it's a strong buyer's market and your seller has been dragging their feet-not wanting to deal with their overpriced home-the ratios provide you with more than just a "professional opinion". Now you have the proof of the market numbers

Let's use the stock market as an example. When you call your stockbroker with your Microsoft shares, you are at the mercy of that day's market. Your stockbroker doesn't price your sale based on what you want, what you need, or what you dream of getting. The market for Microsoft AT THAT MOMENT is dependent on how many people are buying Microsoft that day. Hence, supply and demand.

Why don't we use supply and demand more in real estate? I don't know. (Well actually I do. But that's an article for another day.) Should we be using it more? YES! If you are not looking at pending numbers when evaluating property, you are missing out on a valuable tool that shows how the market is running:

· Buyer's market: 0-45% sales ratio

· Balanced market: 45-55% sales ratio

· Seller's market 55-100% sales ratio


It's always best to buy real estate in a buyer's market and sell real estate in a seller's market. You may say, "But you can't predict when that market will change."

Here's the truth: There are buyer's markets AND seller's markets running SIMULTANEOUSLY every day.

The best way to take advantage of this is to track pending numbers in your marketplace every week in set price ranges. Over a period of about 3 weeks you will CLEARLY start to see some trends and patterns. These patterns will serve you and your clients well when you start to share your new found "analysis toy" with them. 

They will be overly impressed because I guarantee you that VERY few agents track the pending numbers on an ongoing basis. Why? Because it can be time consuming. To track these numbers accurately, expect to spend up to an hour-depending on the size of your market-pulling your ratio numbers from the pendings on the MLS.

But is it worth the time? YES! Never underestimate the power of working IN your business gathering powerful statistical information that your clients are begging for. If you want to stand out against your competition, then get the competitive PRICING EDGE.

The key to evaluating real estate is understanding not just the value of the house but whether you're operating in a buyer's, seller's, or balanced market-and then using that information to adjust your price accordingly.

 

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