Positioning a home to sell begins with teaching the seller how to read the market.
By Donna Shryer
Ask Alexis Bolin, CRS Emeritus, to explain her strategy to price a home and the Pensacola, Florida-based broker associate with ERA Legacy Realty counters with a quick reply: “I don’t set the price. The market sets the price. I’m the messenger.”
Acting as messenger, however, is no light task. The role involves collecting, analyzing and delivering timely market facts, figures and statistics that indicate what buyers are currently willing to pay for a property similar to the sellers. This in turn demonstrates where appraisers are setting market value and what lenders are willing to lend.
With facts on the table—and the REALTORS® skilled guidance to interpret the data—the sellers best price range will rise to the surface. ”Now it’s up to the seller,” Bolin adds. “They can either price their home to sell or they can price it to sit.”
Lee Bender, CRS, broker associate with Hill & Co. Real Estate in San Francisco, California, finds that working with facts demystifies the pricing process. ”The key to an evidence-based approach to pricing is having the seller agree to rely on the data. After that, it’s easy—because when sellers rely on black and white evidence, we can price a property based on facts rather than fancy.”
A Matter of Fact
The real estate reports that sellers need to review—to see for themselves the right price for their home—are culled from the local MLS database. REALTORS® can capture this information on their own or subscribe to a service, such as Real Market Reports (realmarketreports.com), with the latter presenting out-of-the-box reports.
Regardless of how data is collected, the required charts, graphs and spreadsheets zoom in on comparable homes and/or all listings within a specific price range and fixed area that are active, pending, expired and sold over a predetermined time period. Additional essential reports include days on the market, average prices, pending ratios, list-to-sale ratios and absorption rates.
Knowing the sellers’ expectations upfront is critical, explains Jackie Leavenworth, CRS, and sales associate with DeHoff REALTORS®, in North Canton, Ohio. ”I start by asking the seller what price range they suggest I use to guide my research. Then I run two reports—one for the seller’s price range and one for the price range I feel is best. Then the seller and I discuss both price ranges. The evidence shows us where to position the sellers home so it attracts the most buyers.”
The Facts in Action
Bolin offers an example of how a combination of statistics presents a clear picture. ”Let’s say you want to price your home between $200,000 and $225,000 and our data tells us that there are 59 comparable homes for sale in that price range in your neighborhood. After we dive deeper into the data, we see that only four of those homes are under contract, with average days on the market at 156 and a 94 percent average price-to-sale-price ratio. Doing the math, were looking at 55 homes sitting there—and if they do sell, it will likely be much less than the average of 6 percent under asking price. So I ask the seller, ’Do you just want to put your home on the market or do you want to put it on the market to sell?’ There is a difference.”
When Bolin asks sellers what they think the statistics mean, the logical answer is that buyers aren’t buying homes in that range in this neighborhood at this time. If the seller is motivated, the next step is to find a price range that is attracting buyers. ”When I do the homework and get the right statistics, sellers eventually see the right price range. It may not be as high as they’d hoped, but based on the facts, they’ll know the price range fairly represents current market value.”
FRAMED BY THE NET
According to comScore, Inc., an analytics company, the 20 top-ranked real estate listing websites cumulatively welcomed 176 million unique website visitors in June 2015. The top three sites, Zillow.com, Realtor.com and Trulia.com, captured a combined 68.21 percent of those unique visits.
Those figures include a lot of buyers scooping up data. Some of that data may be outdated, erroneous or just plain insane, but much of it is true. It’s essential that you share this insight with sellers. Homeowners need to understand that the data you’re sharing is often also their potential buyers point of reference.
”Buyers can pull up in front of your house, in their own car without a real estate agent, click into an online real estate database and all the homes for sale in the neighborhood pop up,” says Alexis Bolin, CRS Emeritus, broker associate with ERA Legacy Realty in Pensacola, Florida. ”If a seller insists on pricing their home at $225,000, but the highest sale in this neighborhood was $200,000—and it was for a larger home—a buyer will see this and more than likely drive away.”
The absorption rate—the rate at which available homes are selling in a specific real estate market during a given time period—is a tool that helps homeowners put their property in the “hot zone,” explains Dan Brun, CRS, sales agent with RE/MAX American Dream in Marshfield, Wisconsin. ”Using MLS figures, I create a graph that mathematically shows which price ranges sell faster in the sellers area,” Brun says.
”Let’s say you want to list at $150,000, but the absorption rate shows us that $145,000 to $149,000 is the areas hot range,” Brun adds. “I could try talking the seller down to $149,000 or I can point to the graph and say, ’Here’s where you are, here’s the hot zone and the difference is $1,000. What do you want to do?’ It’s tough arguing with numbers, and in the big picture, $1,000 is pennies—although even that small amount can make a big difference in how fast a home sells. So the answer is usually pretty easy for the seller to make.”
Managing the Uphill Battle
No matter how diligently a REALTOR® does the research, the occasional seller will argue against statistics and insist on listing their home at an unreasonably high price. ”That’s usually because the seller is basing their decision on sentimental value rather than market value,” Brun stresses. “This is when it’s important for me to say what needs to be said. Buyers won’t care that grandpa built the home or for 30 years, the entire family celebrated Christmas in this living room. In the long run, most sellers appreciate the honesty.”
If, however, the seller refuses to budge, Bender will typically go with the sellers chosen price for a two-week trial run. The caveat is that the seller must agree to revisit pricing after the trial period ends. “If the seller does not agree to that, then probably the ethical thing for me to do is walk away,” Bender says.” The seller and I made an agreement from the start to operate on the basis of evidence, and I’ve demonstrated the evidence. There’s nothing more I can do to help this seller.”
Leavenworth, too, has experienced a few stubborn sellers who chose to price their home higher than the evidence suggested. ”That’s when I explain the four possible market responses to their pricing—along with my recommendations. Every 30 days we revisit the market response and adjust as necessary,” Leavenworth says.
- The home sells in three to four weeks. The seller positioned their property correctly.
- The home draws steady activity but no sale. Sit tight for another month—three to four weeks if time and money permits.
- The home has one or two showings a week. Reposition the asking price by around $5,000 to ignite buyer activity.
- The home attracts slow or no activity. Reposition the home by moving to the next strategic price point, which will attract a new group of buyers. “If the seller refuses to accept the evidence, I need to decide how long I want to dance with them,” Leavenworth concludes.
Ending the dance is rare, however, because in the first meeting with a potential client, Leavenworth sets the ground rules. She promises to generate a lot of research so the seller can intelligently position their property to sell, and the seller agrees to base their decisions on evidence. It all leads back to a piece of advice Leavenworth received long ago from a fellow CRS: stop listing properties and start listing sellers who listen to the market.
Crunching the Numbers
When first meeting with a seller, Dan Brun, CRS, sales agent with RE/MAX American Dream in Marshfield, Wisconsin, explains that the ”right price is what the buyer is willing to pay.” To hone in on that magic number, he delivers the absorption rate as well as comparable listings pulled from his local MLS database—although these tools, Brun adds, tend to result in a price range rather than a definitive number.
Identifying a listing price that will attract buyers and please the seller leads Brun to what he feels is the most important ingredient, which is the sellers budget sheet. This tells the seller what different prices within the identified range will net. ”We’ll list 10 possible offers and the spreadsheet does the math, deducting closing costs, commission, any credits, home warranties, taxes, prorations, payoff balances, etc. So now the seller can actually see their net number for each possible offer. This analysis helps identify the precise price that will net what the seller wants.”
Donna Shryer is a freelance writer based in Chicago.
Learn more about pricing to sell in the CRS webinar How to Price a Listing and Sell it Every Time.
