Pricing is one of the most important skills you need to be a successful and effective real estate professional. With more inventory and fewer motivated buyers in the market, mispricing a home can cause your listing to expire, cause you to be fired, or make your buyer miss out by offering the wrong price. Whether you’re pricing a listing or advising a buyer what to offer on their dream home, it’s time to sharpen those skills.
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Note: Don’t assume everything in your market has the same pricing trends! Pricing is a case-by-case analysis and strategy.
For Example, one zip code may have longer days on the market, more competition, and new construction to compete with. The next one you either list or write a buyer contract for may be the only home on the market with the potential for multiple offers.
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PART ONE: KNOW YOUR SUBJECT PROPERTY:
What should your search parameters be? Start broad and then narrow in, depending on how many comparable homes you find.
For example, Let’s say your subject property is a 3 bedroom, 2.5 bath, 2 car garage house that’s 2500 square feet and 15 years old. It’s in average condition on a good street in a desirable neighborhood.
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GEOGRAPHIC SEARCH: If your subject home is a ‘normal residential’, neighborhood property, keep your comps in that some neighborhood or competing neighborhoods.
If the subject property is rural or semi-rural, stick to the county or at least within a 20-mile radius if possible. If it’s a farm, mixed-use, or something unusual to you, get help from your broker and/or an appraiser.
SCHOOLS: If you’re in an area where schools matter, stick with the same school district. If you can’t find enough comparable sales, consider competing school districts.
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AGE: Stick to similar-aged homes, give or take 10 years on each side. If you don’t find comps, expand more years out.
CONDITION: This includes curb appeal and age of not just the home but the appliances, roof, decking, and other items that may be looking worn. Has the house been rehabbed? If so, when? Ask lots of questions using your seller’s pre-qualification script.
SIZE: Don’t make your size parameters too strict to start. If it’s a 2500 square foot home, search from 1900 to 3100 feet to see what comps appear, and then you can narrow it closer to 2500 if you have too many comps.
COST per Square Foot: This is only one way to price property and should never be your ONLY parameter. Consider the fact that the smaller the home, the higher the cost per foot typically is. Cost per square foot is also different on new construction than on resale homes.
STYLE: Is your subject property typical of the area or is it unusual? If it’s the only modern home in a sea of colonials, it might be harder to sell. Alternatively, if your subject property is the quintessential example of an East Coast Cape Cod and it’s actually IN Cape Cod, it might fetch a premium price with multiple offers. Adjust accordingly.
Once you have your search parameters worked out as we’ve discussed, now you’ll keep those search criteria consistent for finding comps in 3 categories: Sold comparable, Active competition, and pending homes.
Active is what listing agents and sellers are trying to get. Pending homes are ones that have been able to at least go pending, and Sold comps are the proof in the pricing. Use all three to price your subject property.
PART TWO: GATHER YOUR COMPARABLE SALES.
Now that you know your subject property criteria, search active, sold, and pending sales using consistent search parameters:
-Average sold, pending or active price depending on your category
-List to-sold price ratio
-Days on the Market
-Number of Price Reductions typical to go pending or sold
-Number of competing homes if you were to list it today
-Are incentives offered by resale listings and/or new construction?
PREVIEW the active and pending sales, and CALL the listing agents of sold comparable to polish your pricing. This includes touring new construction if your subject property competes with it!
Note: When you’re at the listing presentation, let the sellers know that you took the time to preview all of their competition and pending sales. Did anyone else do this for them? Not likely. This is a competitive advantage.
Once you have average numbers on each of these categories, you should have a pretty good feel for price, or at least a pretty tight price RANGE.
PART THREE: Create your pricing STRATEGY
1. Remember the NAR script: If after 2 weeks or 10 showings, we don’t have a workable offer, we need to consider adjusting the price to more accurately reflect the buyers’ expectations in the market.
2. Consider a pre-inspection to address any potential issues that could wreck the deal later.
3. Prepare 3 net sheets for your seller. Low, medium, and high prices.
4. If the subject property is too far out of your wheelhouse or if you can’t find comparable sales, ask for help from an appraiser, your coach, and your broker.
5. Once you’ve settled in on a price, check it against active competition and ensure it makes sense in the line-up. For example, If your subject property is a 3 bedroom, don’t price it like it’s a 4 bedroom. If you’re the only home without a garage in the neighborhood, adjust for that. If the property backs up to a freeway, power tower, or parking lot, adjust. If it’s the only thing available in a popular neighborhood, adjust.
Finally, realize that pricing is an ongoing conversation that is effected daily by many factors: interest rates, competing inventory, new homes for sale nearby, and local economy factors like companies laying people off or conversely bringing in hundreds or thousands of new employees.
Every Comparable Market Analysis you do adds to your pricing skills. Don’t wing it. Print this guide and follow it for every home you’re pricing, and join Premier Coaching for extra help!
