I’m feeling compelled to say right up front, “I love real estate instructors”. As a matter of fact, I married one.
BUT they lie.
This lie that a real estate instructor told you is not malicious or intentional. It’s not even a lie in the context of getting your license. It only becomes a lie in the practice of real estate.
What is this lie?
A comparative market analysis (CMA) is the method used to
determine the asking price for a house.
Lie.
Big one.
Really.
Yes, a CMA is ONE component of discovering the correct asking price but not the ONLY component.
Hear me out….
Proposition #1: Appraisers are historians…
One night at dinner, I was fussing about a house that was not getting any showings even though I was positive that the CMA was spot on. My husband, Tom, (yes, the lying real estate instructor) responded that there was a flaw in my thinking. He said, “You know Jo, appraisers are historians and real estate agents are fortune tellers”.
My ah-ha moment was: The CMA is an historical document and does not consider the current market conditions.
Proposition #2: The competition says…
I will never forget it…a lovely townhouse and a CMA that supported significant appreciation. But in the last 2 weeks an investor in financial trouble decided to dump 10 townhomes, which were direct competition for my listing, into the market at low prices.
CMA said one thing; the market said another. Big trouble for my listing.
Proposition #3: The market changes on a dime…
Over my 20+ years in the business, I’ve seen it over and over. The market may favor one type/price point/location of house one day and hate it the next. When that happens to you, the real estate agent, are left with comparables that reflect one market, but current conditions that reflect another.
So, what’s the solution?
Simple. Consider more factors than just the CMA. Specifically…
- Market trends for your listing (or potential listing) in this moment – Trends are: seller’s market, buyer’s market, balanced market. Knowing the trend for the listing can help you determine whether the price indicated from the CMA is achievable.Want to know the formula for calculating trends? You can get it here.
- Know the competition – Competition can be a game changer. Best practice is to identify the listings competing directly against the listing and list it out in descending order by price. Include square feet and bathrooms on the list.Once you have that list, determine where your listing would fall based on the CMA. Then ask the question…”Does this work?”You can see a tutorial called, Testing Your CMA here.
- Know what your seller wants – Rarely do we consider this question, “Does the seller want to sell quickly or get the most money, or have the easiest process possible?” The answer to these questions will provide you guidance to the asking price.
Okay, my goal here was to start a shift in your thinking about pricing because it’s one of the most difficult issues in the real estate business.
And remember…this is the first blog of a series on pricing. Stay tuned.