The following information is provided by the Center for REALTOR® Development.
The 21st century has so far presented multiple challenges to the real estate industry—notably, a housing boom and rising property values in the early 2000s, followed by economic decline, mortgage defaults, and now a seller’s market in many areas.
Determining property values depends more than ever on professional expertise and competence, the best use of technology, and a commitment to approaching the pricing assignment from all pertinent perspectives.
Your ultimate goal in preparing a CMA is to use it as a tool to help reach agreement with the seller or buyer on a listing or offer price for the home. If they select a figure from within the CMA price range, this goal is accomplished. If not, further discussion is needed.
When your seller or buyer is determined on a figure outside the CMA price range, ask them to explain their thinking. They might reveal one of the common client misconceptions about value, which you can then address, always supporting your response with the facts presented in the CMA.
Below are some examples of effective responses to pricing objections:
Objection (Seller): “We can always come down in price, but we can’t go up! Let’s start at a higher number.”
Response: Explain that homes priced above what the market indicates are apt to take longer to sell, with accompanying stress, opportunity costs and real costs to owners. Homes that languish on the market also tend to get passed over for consideration by potential buyers the longer they are listed.
Objection (Seller): “I’ve heard the market is hot right now, so I want to price my home aggressively.”
Objection (Buyer): “I’ve heard this is a buyer’s market, so I want to get a bargain.”
Response: Use the absorption rate to demonstrate whether the market is buyer’s, seller’s, or neutral.
Objection (Seller): “We completed a $X remodel of the kitchen last year, and that cost should be added to the suggested price range.”
Response: Clarify the difference between cost to the seller and value to the prospective buyer. Explain that the CMA uses comparables that also include the upgrade in question (or have been adjusted for it), so this value is already reflected in the suggested price range.
Objection (Seller or Buyer): “Zillow® says the house is worth more [less] than what your price range shows.”
Response: Fortunately, you also checked Zillow in advance and are ready for this question! Explain that AVMs might contain incomplete or out-of-date information. They do not adjust for issues such as condition of the property and sales concessions. For these reasons, their price conclusions might not be accurate.
Objection (Seller): “My neighbor’s very similar home sold for more than your price range.”
Response: If the neighbor’s home is a true comparable, it should be in your CMA and you will be able to show the client the adjustments that likely contributed to its higher selling price. If you disqualified it as a comparable, you will be able to explain that as well—for instance, the home sold too long ago and doesn’t reflect the most current market conditions. If public information was not available on the house, explain that only known, verifiable information can be used in forming value opinions.
After an accurate property value range has been determined, the CMA is used to help sellers identify an asking price and buyers identify an offer price; in other words, a CMA provides an objective, market-driven starting point for pricing properties. The purpose of a CMA is to establish an accurate range of value for a property that a seller wishes to sell or a buyer wishes to buy. An accurate range is one that reflects market conditions at the time and place of the desired transaction.
To learn more about current and effective pricing strategies for your CMAs, check out the Center for REALTOR® Development’s Pricing Strategies: Mastering the CMA, which is the educational requirement for NAR’s Pricing Strategy Advisor (PSA) certification. This certification aims to help real estate professionals enhance skills in pricing properties, creating CMAs, working with appraisers and guiding their clients through the anxieties and misperceptions related to real estate valuation.
For more information, please visit RISMedia’s online learning portal from NAR’s Center for REALTOR® Development (CRD) and the Learning Library. Here, real estate professionals can sign up for online professional development courses, industry designations, certifications, CE credits, Code of Ethics programs, and more. NAR’s CRD also offers monthly specials and important education updates. New users will need to register for an account.
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