In fact, no property is exactly comparable to yours. “Comparable” properties are simply data points for reference when pricing your property – not an exact comparison. “Comparable” market data helps set appropriate pricing based on properties with similar characteristics such as location, size and amenities. Improvements, updates and differences in amenities and other factors (such as lot size, location, and living space) will all be taken into consideration in the final pricing analysis by real estate agents, prospective buyers and the appraiser.
CMA vs. Appraisal
As a realtor, I am qualified to prepare a Comparative Market Analysis (CMA) to help you set an appropriate list price for your home. The data contained in this proposal is the CMA for your property. An appraisal can only be provided by a certified appraiser – NOT a Realtor.
Pricing Myths & Truths
Pricing and the length of time on market are directly correlated - homes priced closer to their true “market value” will sell faster and closer to their asking price. For a successful sale, your financial and timing goals and expectations must be in balance with market factors.
It’s better to set the price higher,
because buyers are going to bid low anyway
Overpriced Homes Eventually Sell For Less than Market Value
Pricing your home too high to start is an extremely risky position for two reasons:
- First, you risk eliminating the right buyers because when they see a price that’s out of their budget, they won’t come to see the house.
- Second, you will attract the wrong buyers, who won’t think your home is worth the asking price compared to others on the market (the “sales comparison” approach.)
And when you do eventually decide to lower the price of your home to become more competitive, it may have become “stale”– causing prospective buyers to ignore it, suspect problems or discount the asking price even more. Ignore the “low-ballers”. You aren’t going to accept a “low-ball” offer, so why set your price based on that factor?
Homes priced appropriately sell closer to their list price in a shorter period of time.
What You Paid + Improvements = Market Value
The Value of a Home is What a Buyer Gets Out of a Home,
Not What a Seller Put Into the Home.
A $20,000 deck may not add $20,000 to the sale price of your home. A new deck will be perceived as a benefit and add value, but that added value may not equal the price you paid for the improvement.
This is a difficult truth for any seller to accept: it is called “the principal of substitution.” When homes fail to sell, it is often it is due to a lack of understanding of this market principal. This is why an impartial analysis of pricing is an important factor determining the appropriate pricing your home.
My home is nicer than my neighbor's home that is also for sale,
so I can price higher.
For Sale = NOT SOLD
There are two major deficiencies with this pricing strategy:
· “Active” properties currently for sale may not be priced correctly; you risk, therefore, basing the price of your property on an overpriced property.
· New appraisal laws have taken effect under the Home Valuation Code of Conduct (HVCC). In response to the housing “bubble” and mortgage crisis, the intent of the HVCC was to prevent “undue influence” from third parties (such as mortgage companies) from affecting appraisal values. However, several unintended consequences have arisen: slower turn-around-time for appraisals, less experienced appraisers and appraisers unfamiliar with the local area making less accurate appraisals. How can this problem be avoided? Despite a common misconception in the industry, there is nothing in the HVCC preventing real estate agents from sharing comparables and competitive market data with appraisers. This is a practice I follow and have found effective in avoiding problems. However, pricing strategies must now reflect the impact of HVCC on appraisals.
The New Reality: Appraisal Contingencies
In the current market, virtually ALL agreements of sale will contain an appraisal contingency: either as a requirement of the mortgage contingency or as a separate addendum to the agreement. When pricing your home it is critical to be aware of this new market reality to prevent the possible termination of an agreement based on a “low” appraisal.