How a real estate agent prices a home to sell

How a real estate agent prices a home to sell

Written by Helen Edwards Friday, 15 August 2008

In general, property owners want the appraisal district market value to be as low as possible for taxing purposes, but want the market value to be as high as possible if they are actually attempting to sell their property.

Unfortunately, the “market value” system does not allow for a property owner to make those types of distinctions in the process.

Market value

The market value of real estate is known to be the value that a ready, willing and able buyer is willing to pay for a property that has been adequately marketed for an appropriate length of time, in an arms-length transaction, with a ready, willing and able seller.

That definition is a mouthful, so let’s run through it statement by statement.

A “ready, willing and able” buyer is someone who can purchase — has the money or credit to get a loan — and who wants to purchase the property.

The property must be marketed through the same process (e.g. in the Multiple Listing Service) as other properties.

The property should also be available to the “general” market of potential buyers for the average length of time that other properties are marketed before a successful sale.

The arms-length transaction is important because that will allow for the true “market system” to function. If there are other factors in play, such as a child purchasing from a parent or one investor buying out his or her partner, the value could be skewed based on the relationship.

Finally, the seller must be ready (have the motivation to sell now), willing (have the desire to sell) and able (have the ability to consummate the transaction).

List price

There are multiple factors that real estate agents utilize to recommend the “list price.”

• They prepare a Comparative Market Analysis on the property. The CMA should include information about other nearby properties with comparable amenities, size and condition that have recently sold, are currently on the market or currently under contract. Condition is one of the most difficult issues to compare. There could be two houses that are side by side and one has been totally updated and the other has had no updating. They might seem comparable, but analysis of condition does not allow for them to be considered a mirror of the other.
• They address the average days on market, or DOM.
• They take into account the absorption rate in the area.
• They also consider the subsequent months’ supply of inventory in the area.

A month’s supply of inventory is defined as an estimation of how long it will take for all of the comparable properties to be sold, or absorbed, based on how many properties are currently on the market and the monthly rate those comparable properties have sold in the past few months. The absorption rate has one key factor: It uses historical data to forecast the time it will take to absorb inventory. For this reason, agents and appraisers prefer using comparable sales within the last six months because older data is no longer applicable to the current market.

Why selling?

Following all of the data analysis, the most important question to ask is, Why is the seller contemplating selling? Is there a time frame for selling the property, such as has the seller been transferred to a new city and must be at work in one month? If the time frame is not equal to the average days on the market of the comparable sales, then the market value will be lower to get the property sold more quickly.

Real estate agents know that the very best time to generate excellent activity for a property is within the first 30 days on the market. The property must be priced competitively and conditioned above the competition on the first day it goes on the market to take full advantage of the initial market exposure. Remember that the competition for a seller’s home is always new construction.

Helen Edwards is the president and chief operating officer of the Austin region of Coldwell Banker United, REALTORS. Contact Coldwell Banker United at 1-800-531-7667 for assistance or visit www.cbunited.com.

Examples of real homes sold between April and June in 78613.
	List Price	Sold Price	Days on Market	Tax Appraised Value
Home A	$169,900	$175,000	5	$165,059
Home B	$199,900	$184,400	83	$175,218
Home C	$194,900	$195,940	25	$181,519