Getting to the Right Price
The pricing conversation at a listing appointment is getting more complicated due to the rise in automated valuation models (AVMs). Regardless of whether these values are realistic or not, they often give sellers an inflated sense of what they can get.
The challenge I’m hearing from many agents right now is that pricing a new listing is complicated. Prices are changing daily. As one listing sells it sets a new market value because competing listings use it as a benchmark for comparison. Agents are also getting sloppy. I spoke with an agent yesterday who said you can pretty much ballpark a listing price and buyers will set market value. He isn’t doing a proper CMA on his listings anymore.
When we undertake the responsibility of selling someone’s house, we have a duty to educate the sellers, so they can make wise decisions. When you take the time to do the research and come up with a proper CMA, it helps you develop an intimate understanding of current local market conditions, which makes its way into your conversations. You no longer talk about the market at a superficial level, as you have stats and data to back up what you say.
Automated valuation models (or AVMs) are complicating the pricing conversation. We’ve all seen websites that give you an estimated price on a property. Potential sellers often look at these websites before they meet with you, and it gives them a false sense of what their house is worth (think Zestimates). Regardless of whether the values are realistic or not, it is making the pricing conversation more difficult. Rather than ignoring AVMs, be proactive and deal with them up front at your listing appointment.
STEP 1: RESEARCH AVMs FOR THE SUBJECT PROPERTY
When you are conducting research for your CMA, it is wise to collect several automated valuations from different sites (Zillow.com, Realtor.com, Homes.com, Redfin.com). You can do this by typing the property address into each website and it will return a value. You can also type the address into Google and it should return a few AVM sites that you can click on.
Now if you are in Canada, many of these AVMs don’t exist yet because they can’t pull the same data as they can in the US. But rest assured, anything that happens south of the border eventually makes it way north.
STEP 2: PRESENT A SIDE-BY-SIDE AVM COMPARISON
When you get to the pricing section of your listing presentation, start by reviewing the AVM values in a side-by-side chart, so it is easy to see the differences (which are often dramatic). One site may put a value of $950,000, the second may come in at $980,000 and a third may come in at $925,000. Many sellers are shocked to see the spread between these values. To make the point, let them know that the values change day by day based on sales in the area and they are speculative at best, which is why appraisers never using AVMs to determine the market value of a house.
When you present the side-by-side chart to your sellers, explain what an automated valuation is (a fast way to get a ballpark value on a home). Explain that these websites use algorithms and various data points to estimate market value, but houses are like people, it is what’s inside that counts. Computers alone cannot provide an accurate assessment of value. It takes a local expert to intimately understand the property’s condition and upgrades.
STEP 3: PRESENT YOUR ACCURATE CMA RESEARCH
Once you’ve cast a shadow over the accuracy of the AVM values, it is time to present your CMA research based on recent sales of similar properties, as well as active competing listings. Let the sellers know that the market is moving quickly, and if there is a time delay between your listing appointment and when the listing goes live, you will run the numbers again to be sure nothing has changed.
Why is your CMA more accurate than an AVM? Because you consider all the variables that can affect price:
- Condition of the property
- Professional staging
- Amenities and upgrades
- Lot size
- Location (dividing lines between neighborhoods)
- Local traffic patterns
- Walkability factor
- The quality of your marketing compared to competing listings
Coming up with a recommended price is the first step. But even more important is convincing sellers to list at the right price. If you TELL someone what the price should be, they will often be disappointed that it is not enough, and they will take an opposing position to you. However, if you show them all your research and ASK them where THEY think they should position their house, they will often come up with the same price you would recommend, but they will own their decision.
If you underprice it, you may attract multiple offers and drive the price up, but you may not. If you overprice it, your listing will become a sales strategy to show better value in competing listings. In my opinion, the professional thing to do is price your listings properly.
I recommend you get several AVM valuations on your own property, so you can see the differences firsthand. Create a side-by-side chart in your listing presentation to demonstrate to sellers how AVM valuations can be drastically inaccurate. This will bolster your case when you present your accurate CMA data.
If you want to learn more about how to price real estate accurately, check out https://leadersedgetraining.com/virtual-training.
Chris Leader
President
Leader’s Edge Training