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, mis-pricing a home can cause your listing to expire, or cause your buyer to miss out. Whether you’re pricing a listing or advising a buyer what to offer on their dream home, it’s time to sharpen those skills.
Don’t assume everything in your market has the same pricing trends! Pricing is a case by case analysis and strategy.
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 of multiple offers.
Part 1: Know your subject property
What should your search parameters be? Start broad and then narrow down, depending on how many comparable homes you’re finding.
For example, let’s say your subject property is a 3 bedroom, 2.5 bath, 2 car garage that’s 2500 square feet and is a 15 year old house. It’s in average condition on a good street in a desirable neighborhood.
Schools: Keep to the same school district if you’re in an area where schools matter. Consider competing school districts if you can’t find enough comparable sales.
Geographic search: If the subject property is rural or semi rural, stick to the county or at least 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.
Age: Stick to similar aged homes, give or take 10 years on each side. Expand more years out if you don’t find comps.
Condition: This includes: curb appeal, 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, 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 go pending and sold comps are the proof in the pricing. Take all three to price your subject property.
Part 2: Gather your comparable sales
For each of your categories, you need to know the following:
-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 get out and preview all of their competition as well as the pending sales. Did anyone else to 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 3: 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 expectations of the buyers in the market.
2. Consider a pre-inspection to address any potential issues that could wreck the deal later.
3. Prepare three net sheets for your seller. Low, medium and high prices.
4. If the subject property is too far out of your wheelhouse, if you just 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 make sure that 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 which is effected daily by many factors. Interest rates, competing inventory, new homes for sale nearby, local economy factors like companies laying people off or conversely bringing in 100’s or 1000’s 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.
Tim and Julie Harris host the nation’s #1 podcast for real estate professionals in the US. New episodes premier every weekday. Tim and Julie have been real estate coaches for more than two decades, coaching the top agents in the country through all types of markets.
This column does not necessarily reflect the opinion of HousingWire’s editorial department and its owners.
To contact the editor responsible for this piece: [email protected]
