what they need to know · one of the biggest influences on a home's price is the supply and...

1 Today's Buyers and Sellers: What They Need to Know NAR - New Orleans - 2010 Lynn Madison

• Are you their agent at time of counseling?

• How will you handle confidential information?Agency

• Exclusive Agency

• Exclusive Right to Sell

Type of Agreement

• How it's shared

• When it's owedCompensation

• Pictures, address

• AVM and commentsInternet Issues

• How they are made

• What seller should doAppointments

• Show them - don't tell them

• The market is what the market is!Pricing

Today's Buyers and Sellers: What They Need to Know

The Sellers


• We need to present it to them in a visually compelling manner so that it is hard to refute from any kind of logical or factual basis

• Whatever we use - we must be capable of processing large amounts of market data and then collating it into meaningful pricing information that is readily comprehensible to the layman

• The presentation materials need to provide us with a vehicle to communication this information in a straight forward and meaning ful way

• The client's perception needs to change.

• We need to be seen as a professional real estate consultants rather than just as 'sales people'.

• When discussing price with a seller we typicallycommunicate fair market value using 'price' as the measuring stick

• Because we have built up a body of pricing information over time, we can quickly 'picture' where any given property fits into the market as a whole

• The problem is - the seller doesn't have the same body of knowledge and they don't see it the way we do.

What's The Issue?


Where Do You Get The Information?

Data &Information

• Raw facts

• Looks at the past

Knowledge

• Looks at present

• past experience brought to bear on new situations

• Information and data that is interpreted and meaningful

Insight

• Application of knowledge

• Looks toward future

• Intelligent forecasting

• Based on experience

• Learn how to research the info you needYour MLS

• May be part of your MLS

• Market Metrics is agent-direct

Agent Metrics

terradatum.com

• Has agent-direct products Core Logic

corelogic.com

Information or Knowledge? What's the Difference?


Median or Average? A median calculation arranges properties in their price order, from low to high, and then pi cks out

the middle value - extreme values are eliminated. Median sold price is the middle value in a range of sold prices, i.e. half of the properties sold for more than the median price and half sold for less.

An average calculation simply sums all the prices and then divides by the number of properties (thus, extreme values are always included).

Example:

Fifteen people are riding a bus in Redmond, WA.

They compare notes on their annual salaries and determine that their average salary is $48,000;

and their median salary is $46,000.

At the next bus stop Joe Blow gets off and Bill Gates gets on; what does their salary figures look like

now given Bill’s salary of $50M.

Their median salary is still $46,000 but their average salary is now in the $3.4M range.

Which of these figures best reflects the true economic reality of these 15 people?

Did the salaries of the 14 other riders “magically” increase by over $3M just because Bill got on the

bus; or does Bill’s salary simply “skew” the average value?

The same is true in real estate. Just because a few special or unusual properties sell at incredibly high prices doesn’t mean that all other properties in the area have “magically” increased in value to that of the “new” average. That is simply not economic reality - it is just the nature of average calculations!

Median or Average?


One of the biggest influences on a home's price is the supply and demand in the local real estate market.

Supply and demand is a basic economic principal in which a product's price is either positively or negatively affected by the availability of the product.

If there is a high demand for a product that is in low supply, the price of this product will escalate due to market conditions that will support a higher price.

If there is low demand for a product that is in high supply, the price of this product will decrease due to market conditions that are influenced by the high availability of this product.

Supply and Demand


The Target Price Range Concept

When analyzing a property to determine its value we need to think in terms of a “price range” rather than a “single” value.

No two buyers approach a property, or its value, in quite the same way. Each buyer will assign it a slightly different value depending on their own needs, wants, and market perceptions.

These different viewpoints will generate a range of values rather than specific sales price.

This range is defined by buyers, not sellers - a fact sellers often ignore.

We become price experts by previewing and tracking the continual stream of new listings that enter the market.

This is a constant property valuation process that provides us the informational backdrop needed to

understand value. This process is constant and ongoing and is simply the nature of the business.

A real estate professionals pricing expertise, which allows them to set fair-market prices with a high degree of accuracy, is a function of their accumulated market “knowledge” built up by previewing properties and then tracking what happens to them. There is simply no substitute for this acquired knowledge when it comes to pricing properties accurately.

The Target Price Range Concept


“Where is the Target Price Range located relative to the majority of sold transactions?”

The principle of conformity states that value is created and preserved when a property’s characteristics “conform” to the demands of the market. Properties found within this price range are well anchored from a value perspective. Properties that lie outside of this range will, to one degree or another, be impacted by their non-conforming status. This is described by the principle of progression/regression and depends on whether the property is inferior or superior to surrounding properties.

What initial list price will best convey the subject’s value to the market?

a. Is the Target Price Range located within the majority of sold transactions?

b. If so, how active is the segment?

Are there any current transactions (under contract properties) that might be meaningful?

What does the competitive landscape look like and how will this affect my initial list price?

c. If the Target Price Range is not inside the majority group, how far outside is it?

Is it right next to the majority group or is it an extreme “outlier” standing on its own?

If it is an “outlier” - are there any sold properties in the Target Price Range

Are there enough sold comparables to support an appraisal at that price?

Are there any current transactions (under contract properties) that might be meaningful?

What is the main profile of the Target Price Range properties - how does mine compare?

Do the subject’s basic attributes align with the Target Price Range’s most frequent occurrence of them - or are they inferior/superior?

Bedrooms - baths - overall size - parking /garage - what else?

Adjustments will need to be made and the answers will provide useful information for all subsequent pricing discussions with clients; especially when it’s time to set the most advantageous list price and realistic sales expectations.

•Owner over-improves•Most expensive home in area

•Won't sell beyond top of area price range

Regression(Better than)

•Lowest price home in area•Quickest to appreciate

•Higher priced homes pull up value

Progression(Less than)


Absorption Rate - Months Supply of Inventory

Month’s Supply of Inventory (MSI) – this is a figure that represents how long (in months) it would take to sell the remaining inventory at the present (monthly) sales rate. This is also referred to as Absorption Rate. The number of properties that were “For Sale on the Last Day of the Month (FSLDM)” is, by definition, the remaining inventory for the month. This figure is then divided by the current sales rate for the month.

Many MLS systems use the number of properties that went under contract (UC) during the month as the most current sales rate figure. This figure is a direct measure of buyer activity for the month.

Because many real estate professionals have traditionally used the number of closed sales during the month as their sales rate figure this calculation can be included as well and in some MLS's it is the figure used to determine Absorption Rate.

If you use the Sold figure, it is a blend of buyer activity from previous months and the two MSI calculations will almost always be different. Both can be useful; you just need to understand

(and appreciate) the difference in the two calculations.

Absorption Rate - Months Supply of Inventory


Average Days on Market

This is a measure of market sales activity for any given month, i.e. how long (on average) must properties “expect” to be on the market before they sell?

Only properties that went under contract during the month are counted.

All of the different property DOM’s are added up and then the sum is divided by the number of properties involved to arrive at the average figure.

If Over-Pricing is Harmful, “Why is it so popular?” Let’s briefly discuss why Sellers have a tendency to overprice their properties under almost any conditions. There are three general reasons why many sellers pick prices that are above, and sometimes way above, fair market value.

1. Lack of good information – they just don’t have a good grasp on prevailing market conditions and/or comparable market data; thus, their information tends to be anecdotal in nature.

2. Seller’s Syndrome – an affliction that causes many sellers to “irrationally” believe that their property is “special” and holds some kind of exalted position in the market relative to comparable properties and is generally immune to any negative market forces or conditions.

3. Mistrustful of Sales People. Unfortunately there are still consumers who believe agents will underprice the property to get a quick sale and therefore quick cash. Unfortunately, this idea is fueled by the media and, regrettably, some agents as well.

Average Days on Market


Most sellers are afflicted by some combination of all three of these conditions, so the ability to explain market value and where to strategically price becomes of paramount concern. There are some oft- repeated phrases that indicate these conditions are “in play”, but only your personal knowledge of the situation will determine to what degree.

“I want to start high . . .

because I can always come down in price, but I can’t go up"

so I have ample room to negotiate."

if someone really likes the property, they can make me an offer - I'll negotiate with them"

“My property is superior to anything you have shown me"

“If you want this listing you will take it at my price or I’ll get someone who will"

"Let’s try my price for a while and then we can move to your price if it doesn’t sell"

“I’ve got plenty of time and I don’t need to sell"

"But we paid XXX for it"

• Are you their agent at time of counseling?

• How will you handle confidential information?

• Exclusive agreement with another broker?Agency

• What they found on the Internet

• What you can find

Property Selection

• What they should look for - look at - or ignore

• Taking action when they find somethingViewing Property

• Who pays us

• What we get paid

• When we get compensatedCompensation

The Buyers


Average Sales Price to List Price

Although much of the information we have discussed so far can also be used when educating the buyers about the market, this graph is an effective tool when a buyer wants to offer the seller an unrealistic price. Many buyers believe that there is a higher margin between the list price and the ultimate sales price on any given property. Using statistical analyses of what sellers are getting for their properties in the actual market the property is in can be a powerful tool in assisting the buyer in negotiating. The Buyer Agent should do a full CMA for the buyer utilizing all the tools we have discussed to establish a realistic concept of value.

Your ability to analyze and communicate the data

Has a direct bearing on how your clients view the market

Difference between your seller being on the market or in the

market

Difference between your buyer missing the market or benefitting

from it

Average Sales Price to List Price

what they need to know · one of the biggest influences on a home's price is the supply and...

Documents