Check out the latest guest post from my good friend and stellar Real Estate coach Suze Cumming. If you haven’t already, please check her out and subscribe to her blog because it is awesome. Suze has trained many top agents in Canada and is responsible for my of the successful agents at Bosley Real Estate. You can check out her website http://www.thenatureofrealestate.com/
How do you get good at pricing homes? Twice now I’ve lost a listing because my price was wrong. Once it was too high and the other time it was too low and the house ended up selling for $40k more than I thought. I am not only losing the listings, I’m starting to second guess myself all the time. Is there a course or something that I can take?
Pricing matters in real estate and unfortunately, it’s not an exact science. By definition, market value is uncertain as it estimates the value based on what we think buyers and sellers will agree on. To make this estimate, we look at what different buyers were willing to pay for different properties in the recent past. There are a lot of variables in this process and this creates a large margin for error.
Let’s look at the formal definition of market value:
“The most probable price (in terms of money) which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue influence”
I recommend that you keep a copy of this definition with your listing presentation material. It will help you focus on what you are trying to estimate when you are pricing homes and it will help your potential clients understand that your price is an estimate based on factors that we cannot always determine accurately.
The most difficult thing about market value is that it can change very quickly. It can jump up if there are several buyers desperate to get a home in a certain neighbourhood and there is nothing for sale. It can drop significantly due to changes in the economy, world news, threats, rumours, and such. Many of these things are beyond our ability to predict.
I had several listings when the World Trade Center Disaster occurred and their value changed significantly in an instant.
To get good at pricing, understand the definition and then practice. Inspect as many homes as you can in your market place. Estimate what you feel they will sell for. Think deeply about how buyers will perceive this product in this market at this time. Make notes about what you think the home will sell for and why you think that. Then go back when these homes sell and see how accurate you were. If you are way off, speak with your broker or other agents in your marketplace to uncover what information you are missing when estimating values.
I use to underestimate home prices on busy streets. It was my own personal bias because I really value quiet and couldn’t imagine living with the traffic noise. As a result, I only ever sold one home on a busy street in 28 years in the business and I felt guilty about it. (They are still living happily on Mt. Pleasant Avenue in Toronto after 16 years). It’s challenging to keep our biases out of the process but awareness and practice will get you there.
A course on pricing? Good idea. I’ll work on it.
Columnist, The Nature of Real Estate
We had an interesting debate last week at Mastermind about taking an overpriced listing and who and how the price was determined. Have you ever asked an agent ‘Is that the Seller’s price?” because essentially what you are saying is ‘hey, that price is so far out in left field you either don’t know what you are doing or the Seller has chosen the price himself’. Anyway you slice it, no agent wants to hear this question. Sure, ask it as often as you want, but be prepared for the day when the shoe is on the other foot.
So, for a moment, let’s assume that you have taken a listing and the owner has insisted that you list it $100K over fair market value. You took the listing because it is in the neighbourhood that you want to farm and the Seller has agreed to revisiting the list price after a few weeks of “testing” his price. Perhaps you feel confident that you can keep hammering away at the home owner for price reductions. Eventually you get “that” call. An agent calls asks you if it is the Seller’s price. What would you say? To say yes would make you seem unprofessional and perhaps reveal that the Seller is in the driver’s seat but to say no might suggest to that agent that you ‘bought’ the listing. dilemma? Not really. Your best answer is “I would encourage you to bring an offer that you and your Buyer find fair”.
At the core, this whole conversation starts with the listing agent’s initial discussion with the Seller about why his value is so much higher than the agent’s own competitive market analysis. Perhaps you are missing something. Probably not, but lets keep an open mind. The Seller believes his home is more valuable for a number of reasons. Sure, you can see some of his points, even though they are dull ones, but as a duly appointed representative of the Seller, and since you agreed to take the listing, it is your job to go out and stand behind that price. Have you ever heard the term the walls have ears? Saying something negative about the Seller or the list price will come back to bite you. Recently I heard a story of how an agent lost a listing because during a showing she made negative comments about what a dump the kitchen was. The owner and proud kitchen designer was hiding in the pantry listening. We live in a time when nanny cams in homes are as common as dishwashers.
Treat your client fairly and don’t reveal your true feelings about their price. Hopefully you have put into motion a plan and timeframe to revisit your pricing strategy. I suppose the flip side to this argument is that you let someone else take the overpriced listing and let them spend money trying to market it. That is a personal decision only you can make.
This month The Ontario Real Estate Association released the results of an interesting survey conducted by Angus Reid on what’s on the mind of potential homebuyers and sellers. The results were quiet interesting. You can read the full report here; http://bit.ly/QjnXQB . The results of the survey were a perfect topic for today’s morning meeting. I decided to go through five of the top concerns and ask the agents what they would do to alleviate them. Here are their responses;
50% expressed concern over their ability to negotiate a sale price.
Hey, isn’t our job to negotiate on a client’s behalf? In order to prove you have the ability the agents agreed that a solid conversation about various scenarios is important. The client needs to feel confident in your abilities to put this concern to rest. New to the business? Go to your Mastermind group, or just read mine.
59% worried about their home taking too long to sell.
Again, it is important to get the price right from the start. Your discussion about time on market vs selling price is a powerful tool. Set expectations from the start by doing your research on average days on the market in the neighbourhood. Do a proper CMA (competitive Market Analysis) and show history of past sales, that should alleviate this worry.
60% said getting the property ready for sale.
“I know a guy”. Having a team of trades and stagers at the ready will help relieve this particular stress. Over the course of your career it is important to build your team of reliable connections and make sure you can deploy them quickly. Recently, one of our company’s top ten agents told me that he sends a staging consultant over to every listing.
61% said Understanding the process and legal documents is a concern.
Know your forms inside and out and take the time to explain them using plain language. When it comes time for offers on your listing it is important to remember that you are in charge. Your clients are under no obligation to accept any clause that they are not happy with.
77% worried about the state of the real estate market.
The agents had some great counter arguments to this worry. First of all real estate is a long-term investment. As cheesy as it sounds the old saying drives this point through; buy real estate and wait, don’t wait to buy real estate. Markets go up and down but the overall trend is up. While the media likes to suggest that the market could correct downward by 10% it is important to remember that a 10% decline in values just means that house is worth what it was last year. Finally, agents agree that staying sharp, focused and educated is our best defence. The reality is that deals are getting more complicated and the services of a realtor become even more important.
Finally let’s talk a little about going that extra mile. Last week our company held a Top Ten Mastermind session to talk about the market, what’s working or not working with respect to marketing, where are people finding new clients, websites, etc. It was a very interesting discussion with lots of anecdotal evidence which I will use for future blogs. Interestingly, the one thing in common with the top 10 was that they got a lot of their business through referrals. So I asked the question to the agents this morning; why are people referring you to other people? the answer, categorically, was that they worked hard at making the experience great. Not just good and successful, but great. It seems the experience is what matters.
Time to go out and make the experience great for your clients. Have a great week.