Is establishing the best list price based on comparable sales, expertise or just a lucky guess?
Finding an accurate list price is a combination of three important factors: comparable sales analysis, a very important interview with the seller by the listing agent, and expertise in market psychology by the listing agent. Of course, a bit of luck is at play as well. I will be discussing below a case where we sold two homes for a particular seller three years apart (2016 and 2019) and got full price for each sale. I believe this was a result of a seller’s incredible attention to detail and trusting our expertise to get them all the money possible.
The Seller Interview
Sellers have valuable data points about their homes, important information about their neighborhood and other more subjective but relevant information, all of which is elucidated during a seller interview. A professional pricing expert needs the best, most pertinent sources of information for accurate pricing. What a seller says during a price consultation is very relevant to a professional pricing expert. There are many small clues that sellers reveal during a price consultation that will assist the professional pricing expert to arrive at the best list price. When we set a list price at Altru Realty, it is a thoughtful process which involves one or more seller interviews, a CMA, visual analysis through photos of the home and more.
The CMA (the Science) vs Expertise & Psychology (the Art)
Accurate list prices are well-informed “ideas” about how buyers will react to the seller’s home and its list price. This process is more an art than a science. A comparative market analysis (CMA) is based on the science portion through the comparing of data points (sold homes) and not based on human experience or subjective input. A CMA in and of itself is not an accurate way to price a home…far from it. Homes are sold because buyers are drawing on both their intangible emotional response to other homes they have seen for sale as well as what they are seeing in your home. The home’s price must also be backed up by facts and data supporting the valuation. In essence, buyers are assessing whether a home will appraise out before making an offer.
The best list price must be able to draw a full price offer from a well-informed buyer. If a list price doesn’t evoke that kind of buyer response then it is not doing its job. If a list price doesn’t create worry in one buyer that another smart buyer will see the same value in the home and buy that home out from under them, then it’s not listed for the optimum price.
Too Much Wiggle Room is a Seller’s Worst Enemy
Imagine a list price with $50,000 of intentional or unintentional wiggle room. No buyer would ever offer full list price. So, in essence, every buyer will ignore that listing and seek other homes that are more relevantly priced. A failure from the start.
Take for example the seller that has listed two homes: one in 2016 at $595,000 and another in 2019 at $588,800. Both of these listings received full price offers within one day of being listed. And both homes sold at full price. The same seller, the same pricing expert who suggested the list price (myself) and we got the same result, twice now. How is this possible? It is because listing pricing can really only be relevant if the listing broker or agent has a good grasp on the psychology of buyers, sellers and buyers’ agents. One needs this understanding to be an accurate listing price expert. At the same time, the only way this strategy works is if that savvy listing agent is working with a cooperative, well-informed seller.
The seller, in this particular case, had everything to do with the success of the list price and ultimate outcome. Most sellers have a preconceived idea about valuation of their homes based on many industry misconceptions such as, “buyers will lowball me if I list where I want to sell” and many more antiquated viewpoints.
Technology’s Influence on Buyers and How it Gives Them the Upper Hand
In 2007 the iPhone was invented, followed the Google’s Droid platform, then Zillow in 2009. These three events changed real estate forever. Buyers today know what homes are worth because they all have high-speed computers in their hands; they have the sold data at their fingertips. Just as how they use Facebook, Instagram or Uber at speeds that will make older generations’ heads spin, in their search to find a home, these buyers (Millennials and Gen-X) have quickly accessed twenty or so homes; have seen all the pictures and prices; have assimilated a huge amount of data in this short span of time and have drawn fast conclusions. There is no more hoodwinking buyers into feeling good about buying a home – this notion is extinct. The idea that adding wiggle room and negotiating downward will make these savvy-digitized buyers feel like they are getting a good deal is beyond a ridiculous thought—it’s literally insane. Adding too much wiggle room creates the opposite effect of what is desired by sellers by turning buyers off; they will only think, “If the seller is this unrealistic, they will also be a challenge to negotiate with and will just waste my time.”
Not even buyers’ agents help these new buyers decide on which home to make an offer on because their phones have already confirmed what is good and what is overpriced. They know exactly what they are doing and will never overpay. That idea that they need help to feel good (negotiate) that is still held by the majority of sellers is a dead thought.
The Altru Way: Listen to the Buyer and Leverage That to Your Advantage
As a professional negotiator I understand the power, insight and advantage I have when pricing a home due to my experience and insistence on being in touch with reality. I understand that most listings are initially priced 10% over the market and all buyers will ignore those listings awaiting ones that don’t have wiggle room added. When a new listing comes onto the MLS and it’s priced accurately, all these smart buyers attack that listing quickly and attempt to buy it for full value.
Why did this particular seller choose a list price at $595,000 (sale number one) and $588,800 (second sale)? The reason is they were interested in selling the homes and not interested in waiting 60 days or more to explore a value. Value can be found in just 8-10 days on the market. Most sellers are exploring value and not trusting the market (buyers) to give them full value. Listening to buyers is the key to becoming a pricing expert. If the “negotiator” understands how to get the buyers to either pay the full list or drive the price higher than the list price (if multiple offers) and or just get the seller full value through a process we go through called “proving value” then that negotiator can easily set an accurate list price because we never leave money on the table or fear we will do so. At Altru Realty, we understand every aspect of how buyers and buyers’ agents operate. If a price reduction is needed we will be ready to consult, through accurate and thoughtful analysis, proffer up the best advice possible, and be honest about what we see.