Understanding Pricing in Real Estate Vol. 1

As mentioned previously, a real estate transaction is a string of decisions, the sum quality of which determines the overall outcome for both you and your clients. 

Pricing is one of the key areas in this regard. For an agent it’s one of the key skills to master. There’s so much to either be gotten right or wrong when it comes to valuations, and frankly it’s the primary lever whether a home sells or not. Even with access to data, it’s not easy to consistently divine the right price, and that makes it a hot button skill for agents to master. 

And it’s not just about that outcome - did you sell the home at the desired price point and in the desired time-frame - but also about the client experience. Did they feel empowered and in control during the experience, or were they just hanging on to a white-knuckle ride. 

It’s also the case that, while there is a lot of education around pricing and valuations, it’s not always taught well and many agents are more or less “winging it” when out in the field. 

From that perspective, the BrokerBuzz Team has a few posts to share on this topic over the next coming weeks.. The goal is to provide additional context and fundamentals that give agents a deeper understanding and more ways to think about pricing. To make it simpler and easier to hit the target (or find the target more quickly if you were off with initial assessments) while simultaneously making for a better client experience. 

To start off with, let’s take a look at what it takes to get a home sold. Of course there’s seemingly a myriad of factors, but when pulling the signal from the noise, you see there’s really three key facets:

• Condition

• Exposure

• Price

Condition

By condition, we mean essentially all of the home's attributes as it sits. This includes location, improvements, rough spots, neighborhood. Is it backing to a busy road? Is it “done-to-the-nines” or a “handyman special”, etc?  And when it comes to condition, pricing is relatively straightforward - price just has to match condition. 

Now, there are a couple of caveats here. Homes that are updated, remodeled, etc. can get a bit of a “stretch” price. In other words, if you’re overpriced a little bit, a home in great condition that shows well may still perform and fetch a viable offer. 

Conversely, if the home is in rough shape, the seller and agent may need to price the listing just slightly below where they think it should be, to make the offering that much more compelling to potential buyers. I’ve seen countless times where a home in somewhat rougher shape is priced fairly but still sits, and the fact of the matter is there are many buyers out there that may have an interest, but the thought of home projects or sinking additional capital into a home after purchase is a bit of a deterrent, and making the offering just a bit sweeter may be what it takes to get that right offer and go under contract. 

In short, condition is pretty straightforward - the agent just needs to match the price to the condition, with the aforementioned caveats in mind. 

Exposure

Exposure is getting the word out about the property. Not only do you want to make sure it is priced right, but if potential buyers or their agents can’t find it, it’s going to be hard to get it sold. 

Thankfully local MLS’ have done us a favor in that regard. Most MLS’ now have options to display listings in IDX feeds and via Syndication channels to maximize exposure of the property. 

IDX is a pipeline that allows for the display of MLS listings on an agent’s or brokerage’s website. And not only can homes be searched for on those websites, but buyers can also be set up on an IDX feed where an automated email goes out to the buyer on a regular basis with any homes that hit the market that match the buyer’s search criteria. 

Syndication means listings data is going out to sites like Homes.com, Zillow, Realtor.com and all of the additional websites fed by those entities like KW.com, Compass.com, and Anywhere’s brokerage sites. Essentially, Syndication means consumers can search the MLS through third-party websites. 

The reason that I bring up IDX and syndication is that, if an agent just checks those two boxes to promote their listings and does nothing else, the word will still be gotten out so effectively that there is no way a potentially interested buyer or their agent could miss the property. 

In short, exposure and marketing of listings is quite simple - a listing will get full, adequate exposure even if the agent only checks the IDX and Syndication buttons when listing in the MLS and does nothing else. 

Price

As condition and exposure are relatively straightforward, that leaves price as the primary lever. In fact, one could say that finding the right price is 95% (if not higher) of the effort. And from that perspective, the key trend is: the more right the price - the faster the home sells. The more wrong the price, the longer it takes to sell, or it just sits with no offers. 

Takeaways

To make it simple, there are a couple powerful takeaways from this post. The first is that when it comes to listings, it’s all about price, price, price to get performance on the market and get the listing sold. 

The second takeaway is when the listing is on the market and it’s not selling, and you and your client are scratching your heads wondering why…. well, the answer is pretty simple: nine times out of ten, if the property isn’t moving, it’s price. 

Handle accordingly.