Move this listing: 6 Tips to Get Right Pricing for a Changing Market – Inman | Vette Leader

In an overheated market, almost any price will do – competing buyers will do whatever it takes to acquire the property. In a downturn, however, nailing price is absolutely crucial.

While the timing of the recent market shift varied from region to region in the US, it arrived in Northern California in the first week of May 2022. While some sellers understood that a day of reckoning would eventually come, its sudden appearance caught most unprepared, causing confusion, frustration, anger and disbelief.

On the plus side, we live with the most educated sellers ever due to easy access to extensive online real estate market data. Consequently, a decent percentage of sellers saw the shift and were aware that they had to contend with the new reality. Others, however, have refused to acknowledge the changing market, insisting the price of their home is at pre-shift levels.

Add to this a group of real estate agents who either do not understand the new market or are unwilling/unable to train their sellers to set effective prices. We also have a large group who have had their licenses for less than 10 years and have never gone through a significant change before.

The result is real estate brought to the market at prices that are close to reality and unfortunately remain so for longer periods of time. The net result is that properties are classified as “stale” and typically sell for less than they would have been correctly valued to begin with.

When the market moves in a downward direction, buyer behavior changes dramatically. While just a few months ago nearly every home sold within days, homes that are in “questionable” condition, are in a bad location, or don’t look good will be overlooked by buyers, who finally have some choice and choose the premium homes first .

At the end of the day, in a down market, price is the only thing that will sell some properties.

Here are our 6 key rules for effective pricing in the middle of a shift:

1. Explain the new reality

Like it or not, the market that existed before May 1st, 2022 no longer exists. This is extremely bad news for sellers who made plans based on the price they hoped to achieve if the market continued to move higher.

A friend of mine found a great analogy to explain why the pricing from a few months ago no longer applies. “Think of those earlier sales as lottery winners,” she explains. “Only a handful of people win every lottery. With almost no inventory,” she continues, “only a handful of sellers actually made money at the peak of the market. As with all lotteries, no matter how many tickets you have left, the drawing is over.”

The second consideration is moving from an emotionally driven market to a data-driven market. In early 2022, as prices continued to shoot higher and interest rates began their upward trend, some buyers, believing they would soon be priced out, threw up their entire fortune in a last-ditch Hail Mary attempt to snag a home the table.

During this time, February through April, we saw unprecedented selling prices as buyers, operating on adrenaline, did everything they could to win in a multiple-bid scenario and snag a home.

As interest rates rose above many buyers’ expectations, cooler heads emerged and the market toppled. As a result, buyers no longer buy with emotion; They use new data and logic. Using online market data, they can extrapolate current values ​​and make corresponding offers.

Visibly overpriced houses are ignored en masse, as are ideal properties. Now more than ever, sellers need to understand that property condition matters and effective preparation helps move a home while others nearby stagnate.

The third consideration is for those buyers who think they can throw in lowball offers. If you look at absorption rates or months of inventory, we’re still in a seller’s market.

In Alameda County, California, for example, there was only 1.8 months of inventory left at the end of July 2022. In fact, many believe we will see selling pick up again once buyers adjust to the new higher interest rates.

Even with recent inventory increases, we’re still dramatically below numbers that suggest we’ve shifted to a buyer’s market. Buyers who want to score with ridiculously low offers are left out.

2. Create an Effective Comparative Market Analysis (CMA)

The general rule of thumb we use when preparing a CMA is to stay in the same neighborhood as the subject’s home and go back three months. We then set the search parameters to 100 square feet above and below the house we are trying to evaluate.

Having gone through a period of relatively few sales, we use as few parameters as possible to pull out comparable homes. If we don’t find enough properties, we start opening the parameters.

In my opinion, the perfect number of houses is 10. Some like the rule of three: three active, three pending, and three sold. Personally, I like to have more than three prior sales to deepen the dataset I’m working with. I prefer a few actives and pendings and at least five sales.

While there are a number of great CMA products, we prefer CloudCMA for its ease of use, pricing calculator, and the fact that you can set it to include all images of comparable objects. These images often convey more than actual pricing data because sellers have the opportunity to see the condition and upgrades of previous sales.

In the current market, we are running two CMAs: one that dates back to early May and a second that dates back to the beginning of the year (and in some cases as far back as 2021). The purpose is to show the changing markets and effectively eliminate the houses with ridiculously high prices.

While the direct comparison is a bit of extra work, it helps sellers see that what happened between February and April is an anomaly.

3. Create a comparison AVM

One of the problems in the current market is the inability of AVMs (Automated Valuation Model – think Zestimate) to keep up with the emerging market. Consequently, a seller may attempt to use an AVM from Zillow, Realtor.com, Homes.com, or any other website to price their home.

Not only is the data skewed based on sales earlier in the year, AVMs from different sites tend to differ radically when it comes to suggested ratings.

In a previous post, I explained that an effective way to downplay this strategy is to create a document that shows four AVMs side-by-side for the property in question. In most cases, sellers will be able to see that AVM ratings on any given day are not an effective method of pricing in this new market.

4. View trends for the last 6 months

We use TrendGraphix to display data in graphical form. This allows us to present the market trends in a format that is easier for sellers to understand than a bunch of numbers.

While some realtor associations or brokers provide access to data services such as TrendGraphix, NAR (the National Association of Realtors) provides data through RPR (Realtors Property Resource) which can also graph local trends.

As a last resort, sites like Zillow offer some limited regional data in their market overviews. We want to be able to display seller charts that show trends in active, pending, and sold items, price per square foot, average or median list price versus selling price, average days on market, percentage above or below average list price, and market saturation.

Some MLSs and brokerage associations also offer market snapshots. The only problem is that they show the entire market city by city, not a specifically defined neighborhood report.

5. Pre-market price

In a growing market you can get a slightly higher price than previous sales. When prices are trending down, the effective prices are slightly lower than the last closing prices. Unfortunately, the pricing in the current market is a bit tougher than normal.

In reality, current discounts are not falling prices; it’s just prices as they should have been had it not been for the ridiculous February through April specials.

In other words, if you pull those months out of the equation and extrapolate prices based on trends starting as early as fall 2021, you get pricing as it should have been had the market continued normally.

6. Tell the truth

In accordance with our code of ethics, communicate with sellers not to give them a false price in order to score the offer. In the same way one doctor attributes to the Hippocratic Oath, “First, harm no,” let your customers know that you’re going to tell them the truth to give them the best chance at an effective sale, and that, too, will yours The wish is to protect them from the financial damage that could result if their listing stays on the market for too long.

If your sellers insist that another agent has promised them a higher price, then encourage them to contact that agent, but only give them a short bidding period. Tell them, “If they promise you a higher price but cannot deliver in a short time (no more than six weeks), then please come back to me to list your home to appreciate the fact that I can offer you.” told the truth first place.”

Some sellers will respect this; others, once they find out the reality, will either withdraw their offers altogether or work with their existing agent to lower their prices to avoid having to switch agents.

That’s a long piece. I’ve lost on listing appointments and watched sellers fight with their agent of choice to an unfortunate conclusion, only to get the sellers to refer other clients to me instead of the agent actually selling their home Has. I may not have gotten the first listing, but with my integrity I later sold her friends’ houses.

In the new reality, effective pricing is everything. Work with your prospects to set realistic prices – the homes that are properly prepared and competitively priced are the ones that are currently selling.

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