How do you go about reconciling market data?
Pricing has been so easy for the past 18 to 24 months because you can put any price on a listing and get a million offers.
The market determines the price in just days. Not as much anymore.
Most sellers have no idea how you come up with a price. They have heard the letters C-M-A before and have experienced agents dropping a pile of papers on the kitchen or dining room table and making a price suggestion.
Sellers also watch the shows on T.V., where the agent walks into the house and looks around, and just says, “Yeah, $6.7 million.”
Where did that come from?
I believe pricing is the most critical part of what we do. It helps set us apart from our competition when we have a process for how we arrive at a price that people can buy into and understand. If you tell the truth about the price of a listing, the seller might not like it, but they understand that you arrived at that price as a result of a process, and they are more likely to buy into your price.
There are different ways to go about this. Most agents pick a number, a high or a low number, trying to guess what the seller wants to hear. This market is changing, and if you do not have the right price, things are going to linger on the market a little more. Obviously, sellers want a high price, and a lot of people buy the listing by going along.
Then, you have to keep your seller happy for a long time, during which they get disenchanted and annoyed about the fact that the house is still sitting on the market, they are still picking up their underwear off the floor and making the beds. It is no fun, and then, you are hitting them up for price reductions all the time, and, in the end, it sells for less money than they might have gotten otherwise.
In the end, things sell for fair market value, and my definition of fair market value is a number, around two to four points, and our job is to get the high end of that range for the seller. Therefore, choosing the right number and reconciling the market data to arrive at the right go-to-market price for a listing is based on a process, not guesswork, not buying the listing, and not massaging the seller’s ego.
Seven steps to follow
When it comes to reconciling market data, I use these seven steps:
- Gather sales data.
- Adjust the sales and make them more like the subject property. If you think that makes me sound like an appraiser, not really. I have developed a really easy spreadsheet that I am happy to share with you that looks very impressive to sellers.
- Compare to a benchmark. The best benchmark you can use in most markets is sales price per square foot.
- Present the price to the seller in secret, “Mr. and Mrs. Seller, no one is going to know anything about the price I am recommending for your property. This is just among us. Shh, secret.”
- Have the pricing committee come by? What is the pricing committee? It is a fancy name for your office tour. So, the office tour comes through. In my case, it comes through on a Thursday morning. We all look at the property. None of my fellow agents have any idea of what I have talked to the seller about price-wise. And, then, one at a time, I gather their opinions to report to the seller.
- The seller selects the price. Keep control within them. But, when you give them enough benchmarks, the price is obvious, and unless they are really out there, they are going to follow the data to where it leads.
- Test market acceptance of the price. The way we do that is to see how many people looked at the property online. I like to see one person through the door for every 1,000 views online, and if I am not seeing that, that is a sign of the market rejecting our value proposition.
In conclusion, there is nothing to be gained by a long time on the market, have a process and follow it.
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