Reviewing the Market Analysis and Establishing an "Offered At" Price

Episode 7 "Reviewing the Market Analysis and Establishing an 'Offered At' Price" is the third episode covering the 5 Steps in a Listing Consultation.

This episode does not cover the mechanics of putting together a market analysis.  Rather, it reviews the process and tools agents can use to have the conversation about the analysis.

We  hope you enjoy this episode.

Transcript

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Welcome to real estate. Common sense. I'm your host. Lisa Spencer. I grew up in a real estate. Family was a top producing agent and a managing broker for over a decade. Eventually leading an office of over 400 agents. What I've discovered is common sense is not that common, especially when it comes to launching building or expanding a real estate business. I have interviewed thousands of agents and helped hundreds launch successful. Careers today, we're going to wrap up our conversation about the listing consultation with the final piece, determining a price. I wish there was another word for price when it comes to marketing a home for sale. What is commonly referred to as a list, price would be more accurately described as an offered at price. You see, when we bring a home to market, the price is eventually determined by a ready, willing, and able buyer. And the price of the home is finalized at the closing table, which occurs in the majority of cases, Has occurred after an appraisal has confirmed the value. In the day of automated valuations, there's no way to peel back a price to determine if it included seller paid closing costs, or if it was inflated by other special conditions or amenities without doing some investigation. This is why a market analysis prepared by a real estate. Professional is still the most reliable resource for pricing a home. As long as that realtor is living up to the code of ethics and thoroughly investigating the properties they include in their comparative or competitive market analysis.

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And this episode, we are not going to cover the details of how to do the mechanics of a comparative or competitive market analysis. We are going to discuss how to present. The CMA after you've prepared it, there are so many products on the market, as well as each brokerage, having their own way of doing an analysis that we can't go into that in this process or. The podcast would be hours long. And obviously, I don't know all of the different products out there. We're going to talk about once your CMA is prepared, how you review that market analysis with the seller.

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The review of your analysis should always be reserved until the end of your consultation. The seller will not be able to hear anything after the price. So make sure that you've established your value and covered all of the necessary processes and procedures before you dive into price. It is important to remember that there are a lot of opinions, but only one set of facts when it comes to pricing a home. Padding a listing price is specifically mentioned in the realtor code of ethics as a part of standard of practice. 1.3, which states. Realtors in attempting to secure a listing shall not deliberately mislead the owner as to the market value. This is why it's best to serve as a guide when it comes to pricing. We can present the market conditions and then review specific homes that are active, pending, or recently sold. And then let the seller make the decision as to the specific price they choose to offer their home to the market. In our last podcast, we spent some time on reviewing the overall market conditions with the statistics. You must know. Once you've established the pace of the market, such as we have 14% more homes available, or we have 10% less homes available. And if no new homes came on the market, it would take three months for all of them to sell. And you share the median price or the average price, if that's all you have. And is that moving either in a negative or a positive direction? And then you move the seller through a funnel of information, but it's always important to start with overall statistics. It's important to cast the pricing net wide with national statistics. Those are the ones that the seller is stuck on because they listened to the evening news. Then move towards state county and local trends. Lastly move inward toward your CMA, which should include. Only 12 to 15 properties at the most. When we sit down and immediately start reviewing specific homes, it creates an illusion that these are the only homes that are the competition. The work you do in establishing the pace and the direction of the market will help the seller determine the placement of their home. In the range you offer. In presenting your CMA. You're going to begin with the active properties. These are the homes that are competing for the attention of buyers in the pricing window that you feel compare with this home. You should explain to the seller that the"offered at" price of these homes is not included in your CMA calculation because these properties are simply competition and they are being considered. So the seller can position themselves to win the attention of serious qualified buyers. Let the seller take some time to review these properties. Too many times agents rush past the active homes because they do not get incorporated in the analysis calculation. But they serve a powerful purpose. If you expand on the features and the amenities, these homes offer in relation to the home that you're going to be bringing to market. Next we move to pending properties. These are a bit of a minefield and I would restrict the pending properties to homes that compare very closely to the one you are analyzing. If you've been doing a great job with your relationships, with other realtors, you may even be able to make a few calls and see if you can get some direction on how to speak to the seller about pending properties. The listing realtor will likely not share the contract price as. Until it closes. They owe the seller confidentiality. But you may be able to get them to share if any concessions were made or if they negotiated the price, regardless of your sleuthing. The pendings are always a bit of a mystery and should not be dependent on in a calculation. You may even decide not to include them. And explain to the seller that you're excluding pending properties because they cause confusion. You however, absolutely must know about and be prepared to talk about any relevant pending properties, because the seller may have some neighborhood gossip about a house down the street that recently went under contract. And you will need to explore that. Hopefully you've moved pretty quickly through the active and the pending properties. And now you can focus on the three to five sold properties that you have included in your market analysis. Again, remember that in most cases before you even began the consultation, the seller had a list price in mind for their home. If through the course of the consultation, you have uncovered that price. Then move quickly through the sold comps and offer the range, which hopefully incorporates the price they have in mind. If you established your range is below the price that they have been hinting at. Then take more time with the comps and then offer your range. So let's say your middle point is 550,000. Your lowest comp is 527,000. And the highest is 574,000. They say they want to list the home at 580,000. So if this was 2021, you would take the listing at 580,000 and explain that you feel the market can support being optimistic. After all that market was moving so quickly that slightly over pricing really didn't cause any damage. Alas. We are in a new market. At the time of this podcast, national housing prices have stalled. And in some cases fallen. However, in the part of Florida where we are located, our prices have still been edging upward, even with the pressure of higher interest rates. This is why it's so important to cover trending before details of your CMA. So let's break down this conversation for a market that is stalled or is trending downward. Your comps range from 5 27 to 574,000. And the seller says we want to list at 580,000. We could respond with that's very optimistic and I'm one of the most optimistic realtors in Florida. However, we could be putting, getting the best price at risk. Hopefully they'll have a curious response and you'll say, may I explain. You see the real estate market is like a balloon. It expands and contracts in response to the national and local economics and international news. Then draw a balloon on a piece of paper on a back of a napkin. Place a stick figure house outside to the left of the balloon and label it 580,000. But another stick figure house in the center of the balloon and label it 527,000. Then point to the house in the center and say, based on our research, this is what the market is telling us is the sweet spot. Your home does have a few more things to offer. So let's look at that as the bottom number we should consider. Let's say we settle on 560,000, then you'll draw a home midway through the center of the balloon. Or we could go to the top of the range and then draw a house right on the edge at 5 75. Now go back to their suggested price of five 80, that one that's outside of the balloon there on the left. You see if we offer your home to the market at 580,000. We are depending on the market to expand. And you draw a dotted line outside of that balloon that goes through there$580,000 house. And a few years ago, we could do that because the market was expanding. Unfortunately indications now are that the market may be contracting. And then draw a line through that one, that house that you drew in the center at 560,000. Now don't talk about that yet. Just leave that dotted line of as a visual. First address that house at 5 74. That's at the edge of the balloon. C we left our price of 5 74 out here in limbo. For any of you who were raised Catholic, you know, limbo was a bad thing. We priced it at the edge of the market, which has now contracted. So I use limbo as an acronym for lacking improvement, seller motivation. Buyer incentives or optimal pricing. So limbo stands for lack of improvement, motivation incentives, or optimal pricing. These are the ways I address things like the home has a 20 year old roof, and now the market has shifted in order for buyers to consider this home. We may have to put a new roof on. It also may be a time where we confirm the motivation of the seller. Then we move into offering some buyer incentives. Remember the ego could be attached to having this higher price. So we can push the limits on price. If we offer ways to help buyers afford the monthly payment, such as a buydown of the interest rate or paying closing costs to save those initial cash outlays. And lastly, we discussed the most undesirable correction for our home in limbo, which is to lower the price or move it toward optimal pricing. Statistics show that price reductions in the list. Price, signal buyers, to be more aggressive with negotiations. If you're feeling a bit lost with stick figure houses and balloon drawings, you can check out our YouTube channel at Lisa Spencer consulting for a condensed version of what I just described. Called, how to navigate fear of the real estate bubble or come to a live listing training workshop where we can share several techniques for assisting sellers with pricing. We'll wrap up this episode with a reminder that you are the calm and knowledgeable guide in every real estate transaction, you may need to spend more time understanding market trends. Or improving your skill around preparing a CMA. And remember the seller should ultimately determine the price they choose to offer their home out to the market. The minute you leave the seller consultation, the market will change. And hopefully the seller signed a listing agreement with you because they were confident you could get the best price in the least amount of time with the least inconvenience to them in any market. Having a strong and educated advocate is the best protection. We hope you enjoyed the past three episodes where we broke down the elements of a strong listing consultation. And we're inspired by our coverage of how to accomplish step five. Establishing an offered at price. Feel free to check out the tools on our website, real estate, common sense.com or purchase our book on Amazon. In our next episode, we'll share some free tools that will help you market and sell that listing. You just secured. Please continue to join us as we share real estate common sense support for agents launching, building, or expanding their real estate business. I'm your host, Lisa Spencer, sending love and wishing you success.