The new standard in real estate pricing is a COMPETITIVE NOT COMPARATIVE Market Analysis. What this means is that you are doing more than just looking at recently sold comps, but are also incorporating the current competition, market patterns and future entrants. This allows an agent to actively position a listing to get the most eyes on it, the most offers at market value and sell the home quicker. For years we have taught pieces of the entire process, and for the first time, in a short eBook, we are sharing the whole process for FREE!
YOUR EBOOK TITLE THE NEW CMA: COMPETITIVE NOT COMPARATIVE
WELCOME!
This book and the entire New CMA process exist only because of agents like you. You are constantly striving to do better for your client(s) and looking for new tools, education, and resources that can help you serve them better. When my father first started making software for his own real estate career, I don’t believe he ever thought there would be so many like-minded agents out there. Having sold real estate myself it’s easy to tell the difference between agents who are ready to learn and want to do better versus those that just want a push button answer that is “good enough.” Thank you for being the former. I believe it’s agents like you that are going to continue to push the field forward, and I hope we can help you have success that shines a bright example of what doing the right thing by your client(s) looks like. This book will show you the Competitive Market Analysis which is a paradigm shift for home valuation. You will go beyond simply comparing homes and use real market information to position a home’s price to compete with other listings and new entrants. This will require two searches and a better understanding of how the economics of real estate work. There is a slight learning curve, and this does require a few more steps, but once you get the hang of it, it makes pricing homes accurately easier, and faster. That learning curve however is the gateway between the lesser agent and one like yourself. We believe that the Competitive Market Analysis and the Competitive Positioning Process (the step-by- step method used to create the New CMA ) should be, and will be, the standard in real estate pricing in the future. I have seen agents who embraced this method not only increase their business but increase their closing rate to 99%. This is not because they underprice or make major concessions. It is because they priced the home correctly for what the market was doing. Whether it was skyrocketing or contracting, it did not matter. The home price was at the right market value for buyers to want to buy the house, and for sellers where they could then buy their next house or get the right amount of money to do what they need to. Agents have really leveraged their market knowledge with this process and are able to time closings, price for market value, and help investors find properties that give them good return by mastering the Competitive Market Analysis . So, I thank you for picking up this book, and know that if you commit the relatively small time it will take to learn its contents, you and your customers will benefit greatly from it. I hope this is a starting point for you to reach your next level, get more referrals and in the long run have a greater level of success.
J on athan DeLe on
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YOUR EBOOK TITLE THE NEW CMA: COMPETITIVE NOT COMPARATIVE
CONTENTS
01. WHO WE ARE
Why we at Focus 1st are the right people to be bringing you this book.
02. THE NEW STANDARAD
Why now is the time for a New CMA and a complete shift in thinking.
A brief overview of the step-by-step process that helps you create a New Compeitive Market Analysis. 03. THE COMPETITIVE POSITIONING PROCESS
04. THE PROCESS IN ACTION
A “live” competitive positioning of an example home so you can see how the process works.
05. WHAT NOW?
A call to action to start utilizing what you learned and leverage your time to increase results.
06. ABOUT THE AUTHOR
A brief introduction to the person behind the words and structure of The New CMA.
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01 Who We Are
YOUR EBOOK TITLE THE NEW CMA: COMPETITIVE NOT COMPARATIVE
WHO WE ARE
Before we jump into explaining the difference between a comparative and Competitive Market Analysis , the need for it in today’s market, and demonstrating how it works, I would be remiss if I didn’t quickly explain who we are, and why we are the right people to make this book. There are a lot of imitators out there trying to separate real estate agents from their money and time for little reward. We are not one of them.
WE ARE AGENTS.
The founders of Focus 1st, the head of support, and myself, the business development manager, all have sold or are currently selling real estate as licensed Realtors™. Support staff have graduated from real estate schools, and our social media marketing employee was an assistant to a top performing real estate agent. We know what it’s like to go to a listing appointment, we know what it’s like to be lost while trying to find comps, and we know what it’s like to have a customer ask a question you don’t know the answer to. That’s why we found a new way, a proven process, to answer pricing questions and guide us to the correct answers.
WE ARE ORIGINATORS.
We are not aggregators. The information in this book and the process for the New CMA is not a simple repackaging of anything else out there. This entire process came from a need to serve our customers better and was created piece-by-piece through experimentation and feedback. It all started years ago when my father, Tim DeLeon, started selling real estate… Like all the other new real estate agents, Tim started to go on tour, viewing as many homes as possible, until one day a stroke of fate and genius (by necessity) changed everything. Tim had a moment that challenged him and changed the way he thought about pricing homes. A customer asked him a very simple question that you probably have heard many times yourself.
When is the best time to sell my house?
This basic question could have easily been talked around, but for Tim it was a moment that inspired a unique thought. You see Tim had just transitioned a year earlier into real estate from an electrical engineering career of 27 years. That background had taught him that if the data was there, he should be able to answer this, and other customer questions with real numbers, not gut instinct. This understanding led him to creating a software program to use for his own business that was unlike anything real estate had ever seen. Soon after, he created the Scattergram Pricing software program and leveraged it to price better than ever before. Agents all around him began asking for the program to use themselves. Thanks to the insistence and action of his wife Joanne DeLeon (also a real estate professional), Focus 1st , LLC was formed and that software began to spread.
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As the software and accompanying tools grew, Tim quickly came to a groundbreaking realization. The comparative market analysis was not good enough. Something in his mind, and in the numbers, pointed to the system not being as effective as it should be. So, he spent some time diving into the main techniques of home valuation to see when they worked, when they didn’t, and why. Using the knowledge gleaned from those experiments, and years of trial and error, he found and created a new pricing process that is far better than any other. He ended up calling it the Competitive Positioning Process. With this process he has been able to price homes competitively, not comparatively, and coined the term Competitive Market Analysis, also known as the New CMA.
WE ARE TESTED.
Focus 1st has been using that same process over the last 13 years, to help Real Estate professionals in over 450 of MLS areas, throughout the US and Canada, analyze the data that is available through their MLS to price and position homes. This is why we can say with confidence that the Competitive Market Analysis created using the Competitive Positioning Process works better and is the way of the future.
This process, and the software we created around it, is now being used in all 50 States and all Canadian provinces, as well as being taught by top training organizations and coaching programs.
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02 The New Standard
YOUR EBOOK TITLE THE NEW CMA: COMPETITIVE NOT COMPARATIVE
THE NEW STANDARAD
The New CMA is a Competitive Market Analysis.
It is accurate.
It is reactive.
It is inclusive of real-world market factors.
You may be asking yourself at this point, “Isn’t the current comparative market analysis also?” The short answer is… NO.
The old CMA, the one you’ve known as a comparative market analysis is incomplete. It’s a puzzle that is missing key pieces, which means it doesn’t create the whole picture. Now I say key pieces, but really, it’s missing more like half the box! The reason for this shortcoming comes from the lack of the pricing methods ability to factor in both seller and buyer motivations. The New CMA is much more complete because it expands its understanding that sellers are more location sensitive, while buyers are more price sensitive. (In most cases). To accommodate for this difference the New CMA introduces the understanding of value vs market value, and a second search with a buyer’s perspective. The New CMA can account for current competition in a buyer’s price range on a wider, relevant area, yet still use recent sold properties to inform us on a home’s value. This is done with a two-search method, and the Competitive Positioning Process. This lets you first find the historical value, then position based on today’s and tomorrow’s market. Why is this such a breakthrough? It gets rid of the guess work and starts putting your finger on the pulse of home sales. When you put this new thought process and action together you get the ability to craft a really accurate New CMA . But, why now? Why do we need to adopt this new and more complete pricing method? There are three main reasons.
Reason # 1: Today’s customers are different, because they have more information than ever.
The old CMA was created in a bygone era where there was no data, not just for real estate agents but for everyday people. That is not today. Today the information is there for you and your customers at the speed of a Google Search.
Customers today have access to almost all the information that you as an agent can provide. They can
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go to Zillow, Redfin, or Realtor.com and get an estimate for their home. They can see where houses are pricing at, and they can see what homes are selling for. The MLS data for them on a base level is easy to find and easy to understand. So what you need to provide as an agent is a next level understanding of that information. It’s the extra thought that gives meaning to the data. You could look at a graph and you could look at information but if there’s no understanding of what it means or what the impact on your house sale is there’s no real value, and that’s where the New CMA really has a unique advantage. It helps lead you and your customers both down the path that allows you to truly understand the implications and effects of market forces, of data, how that’s going to affect them, and what they’re doing. That’s what they’re looking for. They are looking for that next level of understanding that someone that’s not in real estate wouldn’t understand.
Reason # 2: Current pricing models are failing your clients, and you.
The top 3 pricing models currently used today by most real estate agents are in some way or form, price per square foot , absorption rate pricing , or compare 3 . There are cases where these methods can work, or the market fixes an error, otherwise they wouldn’t be used, but each of them all have major failings.
Pricing Model #1: Price Per Square Foot
Price per square foo t is a simple calculation where you divide the price homes have sold for by their size and find an average. Then you simply take the size of your subject property and multiply to find a value. The price per square foot approach works only when you have the following situations be true.
• Multiple properties that have sold recently that are extremely similar in size (less than 10% difference) in the same or comparable location, as the subject property.
• The market is “stable”, meaning that there is a not a lot of “movement” in the market. In other words, prices in the market must not be moving up or down significantly.
THE ISSUES
Issue # 1: Missing the mark. Price per square foot varies drastically even in the same neighborhood and area with similar features and amenities, especially if the area has homes that vary in size greater than +/- 10% of the square foot of the subject property. When you create a price per square foot relationship, in many cases they’re doing the +/- 10% of the square footage for the home based on the area and then you price from there. So what happens is you only get a narrow snapshot that can easily lead you astray for the value of the home you’re pricing. Issue # 2: Including non-relevant data. The second main issue you see with this calculation is that it is often done on too wide of an area. The price per square foot number calculated on +/- 10% square feet means you’re including homes of similar size from multiple neighborhoods or areas of the city. I don’t think I need a graph to prove to you that different neighborhoods price, well, differently. Whether they are newer or have more amenities, including homes of similar size from different subdivisions can throw everything off course.
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I ssue # 3: Market movements. The market is rarely, if ever, “stable.” What we mean by stable here, is that home values are neither increasing or decreasing. If we lived in a bubble and home prices weren’t reliant on interest rates, inflation, or future’s market on commodities, then this could happen, but that’s not the truth. Traditional pricing methods, especially price per square foot , compare recent sold properties and establish “value.” However, the main fault in this idea is you’re still trying to price in today’s market using the price of something that sold often months ago. Can you imagine buying a car based on what it sold for six months ago? Do you get to go to the gas station and buy fuel for what it was 6 months ago? I don’t know about you, but I’d love to buy shares of Tesla or Apple for what their value was in the past! So, because prices and values are changing we are almost always led astray using price per square foot, with the exception of pure luck.
Pricing Model #2: Absorption Rate Pricing
Absorption rate pricing works by taking the number of homes sold over the last 12 months, 9 months, or 6 months, then doing a basic division. Thus, giving you the number of homes selling per month (i.e. the absorption rate). Then you can look and say, if there is an absorption rate of 2 homes per month in your area and if you want to sell in the next month, you need to price to be one of the 2 best values in your perspective. Absorption rate pricing can only work when there’s a couple of situations or a couple assumptions that must be true.
ASSUMPTIONS THAT MUST BE TRUE
Assumption One: There is no seasonality. For absorption rate pricing to work correctly you can’t have fluctuations throughout the year when a neighborhood sells a lot and when it sells a little. It has to be equally distributed as far as home sales throughout the months to make sure or to make the calculation be absolutely correct. (Now there are some areas that are very close to this, mostly along the coasts. Coastal areas have a lot less actual seasonality, less winter, fall, spring, summer fluctuations.) Their economic and environmental effects are less, so this can be very close to being true. However, in many cases, especially where we’re based in Colorado, there is very much seasonality and change between January sales and July sales. So often, this assumption is wrong. Another seasonality in the market you have to assume is not happening, is a change in the market. Absorption rate pricing works only when there are no interest rate changes affecting demand, period of appreciation growth affecting supply and no governmental actions that cause ripples in the real estate environment. Not surprisingly, this assumption is rarely held up. Assumption Two: Area matters more than price range, or vice versa. The absorption rate pricing calculation is based off the number of homes that sell in a certain area during the time period. What this means though is that you are looking only at the area, you’re not factoring in other areas that have homes for sale that could take a home sale away from you. Again, using the buyer’s zone as mentioned earlier. Even if you are doing the absorption rate pricing math on a price range, not area, then you’re still missing out on your area in particular. For the math to work right, we must assume that either area or price range competition doesn’t matter. That rarely is true.
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Assumption Three: There are no new entrants to the market. Zero new homes are coming on the market. How often is that true? Technically never since you’re home coming on the market would change that, but more importantly if new construction comes into the market it will destroy the absorption rate pricing math. New construction is the monkey wrench that will dilute absorption and increase supply quickly. So you can’t have any new construction for absorption rate to work correctly Assumption Four: Your subjectivity is correct. There will always be some subjectivity or judgement calls in pricing homes. For absorption rate pricing, you have to be correct on yours. When you rank your home in value to try and position it in order correctly, you have to be spot on for what the buyers are looking for. This step amazingly enough is the saving grace for many agents. A good hunch has saved many an agents bad pricing.
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The inability for absorption rate pricing to truly account for market variability, seasonality, price range versus area market conditions, and its extremely high reliance on correct subjectivity, i.e., guessing, means this pricing method doesn’t really meet the mark.
Pricing Model #3: Compare 3
This method is the one you’ve likely seen the most, whether it be on an appraiser sheet or in a college course. The idea is that you take 3 homes that sold recently and look at their features and inclusions, and the difference in their sales price. You try and find one that is most like your subject property and assign value to features that are different to buffer your price up or down. When using this method, the difficult part comes with assigning “value” for each of the features that are included on one property or subtracting the “value” for a feature for one of the properties. How exactly does someone determine what a fireplace (for example) would be “valued” at? Even if you were able to determine an accurate replacement cost for that specific fireplace with the mantle, brick or tile, and other features of that fireplace would be, you would then need to depreciate that value based on the age of the fireplace. As you can image, this process becomes incredibly time consuming and meticulous. Eventually, one tends to just make their best “guess” on what these incremental values might be and sometimes the guesses are fudged to “justify” the price they are looking for. Once this type of “analysis” is shown to a se- ller, if the seller has any kind of analytical or technical background, they will “argue” over every one of the “values” provided to push their property as high as possible. Usually when this model is used, the price per square foot model is included to adjust for difference in size. Of course, the adjustment will be different when comparing square footage above ground compared to square footage below ground. Also, as we stated before, both the price per square foo t pricing model and the compare 3 model tend to focus on comparing the subject property to other comparable properties, in the same area, that sold in the last six months. This opens the compare 3 model to the same issue that price per square foot faces with market movements. So, what about the situation where home prices are dramatically increasing or decreasing in a short period of time? How do you adjust your pricing when the market is moving dramatically up or down using this method? Again, this method really struggles when you are out of the
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bubble or theoretical pricing and in the real world. This leads to being unsure as an agent, which in turn creates the other two commonly used pricing methods that we see, asking customers where they think they should be priced OR asking other agents for their “input” and averaging their responses. Both methods are not only inaccurate but also make you no longer the real estate expert and can cost you listings, referrals and a career.
THE TAKEAWAY
So, all these pricing models have their issues, but they are used today so there must be something good about them. Each one has a piece of the puzzle that’s very important and is needed to truly Competitively Position a home. Price Per Square Foot: Using historical data to establish defendable backed value that lets you know whe- re a rough value would be expected. Absorption Rate Pricing: Introduces the idea of positioning against current competition and establishing relative value. Compare 3: Introduces the idea of looking at specific features and seeing what is valued more and by how much.
The New CMA needed to incorporate all the good but none of the bad. How is this possible?
The New CMA starts with a focus on the area, looking at the neighborhood and establishing a pricing range using historical data and accounting for differences in specific features and inclusions. ( price per square foot & compare 3 ) Then using that pricing range you expand to a competitive range to do a second search with a buyer’s perspective, then position against competition to match market value. ( absorption rate pricing ) You also include in this positioning step, market momentum , desirability , timing and visibility to avoid the other pitfalls of old pricing methods. What does this do for your pricing? Well that brings us to the third reason we need to adopt the New CMA .
Reason # 3: The New CMA is more accurate.
The main reason that the New CMA will soon be the standard in pricing is that it is more accurate. A comparative market analysis will get you in the ballpark, but a competitive market analysis will navigate all the different factors to make sure you’re throwing strikes. It helps you understand value and historical pricing as well as the current climate of the real estate market. You can truly establish value and the right pricing with the Competitive Positioning Process . You find the true market value. It helps guide your thinking to find not just the value but find the real price at which the home will sell. There are many cases where you might find the perfect value but the home doesn’t sell. If the home is not priced at the right market value that not only elicits showings and offers but actually closes, then it does not matter how perfect your pricing was or how historically great your algorithm is. This all works together to help you find the pricing that will get the house sold so that you can then be part of that statistic that actually was a closing or transaction.
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Secondly, the New CMA can adapt to the current market and how it changes better than any other model. This is accomplished by both predicting the customer experience and competition as well as being able to re-position based on new entrants. This reactivity leads to a constantly adjusted, accurate, market value. Reacting to the market and really thinking your way through both the buyer and seller perspective when it comes to pricing is what makes the New CMA so much better than the one-sided nature of the comparative. This really puts you in a place of understanding the desires, emotions, and the pure logic that might be behind the buying decisions. All of this together may seem like it’s going to be an impossible task or a lot of work. In reality it is a step-by- step process, that when you learn it, it becomes not just the standard in your business but something you can rely on. This is a skill that once it becomes second nature you don’t know how you can live without it. The Competitive Positioning Process is series of action steps guided by a series of thought steps that will result in accurate pricing and understanding regardless of price range, home type, market movements or subjective leanings that you can rely on to be consistent in both its application and result. Basically, if you follow the steps, it works no matter the other variables in the world. That’s a powerful thing. There aren’t many things in this world that you can rely on to be consistent like that. Many people joke that the only two things you can count on for sure are death and taxes. Well now you can add Competitive Positioning to that list. It’s a big claim and you may have rolled your eyes more than once at the statement, but I can say it with 100% faith because we have seen it work for agents across the country. We’ve used it during the market fall of 2008 and the boom of 2020 and the inflation skyrocket of 2022. We have seen it used in high price vacation areas, skyscrapers, rural communities, vacant land, and traditional suburbs. The data changes, and the dollar amounts change, but the process stays the same. All you need to do is follow the steps outlined in the next pages (and demonstrated in the following chapters) and you will find yourself on the right path every time. Now the demonstration is on a standard platted home and you may have questions how it works in your area. You’ll find if you keep your mind thinking to answer the puzzle with the same steps outlined here you will price your properties correct.
Which brings us to the New CMA , the Competitive Market Analysis , and the Competitive Positioning Process used to create it.
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03 The Competitive Positioning Process
YOUR EBOOK TITLE THE NEW CMA: COMPETITIVE NOT COMPARATIVE
THE COMPETITIVE POSITIONING PROCESS
The Competitive Positioning Process is a step-by-step method for evaluating historical data, and current market conditions to find the true market value of any home.
STEP 2.1: Find Comparable Recently Sold Properties & Market Value Trendline STEP 2.2: Establish Pricing & Competitive Ranges LOREM IPSUM STEP 2: ESTABLISH VALUE BASED ON HISTORICAL TRENDS STEP 1.1: Know the Subject Property STEP 1.2: Know the Wide Area Appreciation Trend STEP 1.3: Understand the Neighborhood Trends & Their Implications LOREM IPSUM STEP 1: UNDERSTAND THE AREA PATTERNS
STEP 3: COMPETITIVELY POSITION THE HOME
& PRICE FOR MARKET VALUE
STEP 3.1: Understand the Market Factors STEP 3.2: Competitively Position the Price LOREM IPSUM
STEP 4.1: Convey the Information to Your Sellers STEP 4.2: Convey the Information to Potential Buyers LOREM IPSUM STEP 4: PRESENT THE COMPETITIVE MARKET ANALYSIS
LOREM IPSUM (IF NEEDED) STEP 5: RE-POSITION THE HOME
STEP 5.1: Know When to Re-Position & How
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Let’s dive into each of these steps and their sub-steps to better understand the full process. As you read through this, you’ll notice I mention graphs, but don’t show them here. In the next section we’ll walk through an example of the New CMA with a property, show all the graphs and discuss them. As I mentioned earlier, we at Focus 1st a created software that generates these graphs to make this process efficient and easy to show customers, these are the graphs I’ll show you. We believe it’s easier to learn with visuals and showing in better than telling, and by the end hopefully you will too. STEP 1.1: Know the Subject Property STEP 1.2: Know the Wide Area Appreciation Trend STEP 1.3: Understand the Neighborhood Trends & Their Implications LOREM IPSUM STEP 1: UNDERSTAND THE AREA PATTERNS
Knowing the Subject Property and its key details is vital when it comes to pricing. Surprisingly this simple step is where the most agents misstep. The first thing you must do is look at the property records or previous MLS sheet to understand the basic details about the house. You must at minimum know:
- Address - Lot Size - Condition
- Neighborhood - Year Built - Features
- Total Square Feet - # of Bedrooms - Area Amenities
- Finished Square Feet - # of Bathrooms - School District
It’s also immensely valuable to look at a satellite image on Google Maps so you can know how the house sits on the lot, where the lot sits (i.e. cul-de-sac, corner lot), as well as where any major dividing features in the neighborhood are; such as greenbelts, parks, or major roadways.
Once you know the area, we can look at two sets of area trend graphs in order to understand the market and set both our and our customers expectations.
STEP 1.1: Know the Subject Property STEP 1.2: Know the Wide Area Appreciation Trend STEP 1.3: Understand the Neighborhood Trends & Their Implications LOREM IPSUM STEP 1: UNDERSTAND THE AREA PATTERNS
The first pattern we look at is FHFA appreciation data. The US Government’s Federal Housing and Finance Administration (FHFA) collects data to show how home values have changed over the years. Their data is collected by Metropolitan Statistical Areas (MSAs.) This is a great perspective that is a fairly accurate value
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We look at this to see the trend and set the right expectations mainly to help us know whether we are looking at an appreciating area or one which hasn’t seen a ton of growth in recent years. This can let us know if we are on the right track and is a great tone setter as we begin to talk about appreciation with customers.
A quick note: Canada has similar data based on sales, and at Focus 1st we created graphs for that data as well.
STEP 1.1: Know the Subject Property STEP 1.2: Know the Wide Area Appreciation Trend STEP 1.3: Understand the Neighborhood Trends & Their Implications LOREM IPSUM STEP 1: UNDERSTAND THE AREA PATTERNS Next we zoom in and look at the Neighborhood Patterns to predict the experience and we will use them later to show us two of the market economic factors: timing and desirability . These patterns can help with buyers and sellers and are very easy to explain when it comes to what to expect in the home sales process. The Neighborhood Patterns consist of the Odds of Selling, the Time to Close and the Buying Pattern graphs.
The Odds of Selling Graph
What it is: A stacked bar chart that shows proportionally the number of homes that have sold, are currently for sale, under contract and withdrew in the last 12 Months, and an Odds of Selling percentage number for the area. What it tells us: The Odds of Selling graph tells us specifically the likelihood that the home you’re pricing will sell. The implication of this number is desirability to buyers. The higher an odds number is, the more likely it is to sell because of the buyers desire to be in that area. This desirability is a major economic factor we will use to home in our positioning.
Time to Close Graph
What it is: A scatterplot graph that shows the number of days a home took to close from the day it was listed, as well as an Average Days to Close line that shows the neighborhood’s trend.
What it tells us: The main takeaway from this graph is how long we should expect a home sale to take. This will help you with your pricing in two major ways. First, it will help us understand timing by combining it with the Buying Pattern graph. Second, it will help us know when to re-position the home if we aren’t seeing the activity needed to sell before the Average Days to Close line.
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**A third non-pricing, yet powerful takeaway from the Time To Close graph is that if you have customers that are perhaps building a home or planning on selling in the future you can answer the question of when do they need to be on the market to match their timeline? While this isn’t necessarily part of pricing, it’s important to note as predicting the customer experience is a major value you can provide.
Buying Pattern Graph
What it is: A column graph that shows the number of homes sold in each month of the year for the last 12 months running.
STEP 2.1: Find Comparable Recently Sold Properties & Market Value Trendline STEP 2.2: Establish Pricing & Competitive Ranges LOREM IPSUM STEP 2: ESTABLISH VALUE BASED ON HISTORICAL TRENDS What it tells us: This graph shows the most active months, meaning more homes sold during that time. This has a direct impact on value as there are more buyers putting in offers and closing on homes, yielding more bidding and higher prices for the sellers. This shows us the timing aspect of pricing. Remember these columns show the closing date. To know what this means for the listing date we use the Average Days to Close line number, from the previous graph, and adjust for that number. This combined informa- tion gives us true timing when it comes to pricing the home. After narrowing in on the neighborhood, the next step in the process is looking at historic value from recent sales. Now this part of the process is probably not going to be new to you because this is the main area where most real estate agents are taught on how to price homes. You look at recent sales and you use that to establish an idea of what the value of the home you’re pricing is and price it accordingly. Now our step for this does have a little bit more nuanced and a little bit more in-depth process than the compare 3 that you’ve seen time and time again. Our process uses five factors to price a home accurately and gives you a trendline to show you where your area or neighborhood tends to sell. It also allows you to look at the special features and amenities that really factor in and can be the deciding factor or deciding special feature that can affect the price significantly. We do this using a thing called a Scattergram, which you’ll see later on in this book. Using this graph you can easily find a Market Value Trendline where homes have been selling. You will then adjust a potential value for your home starting at that trendline and move it up or down based on the commonality you have to other sold properties on the graph. This step in the process is used to establish a base estimate price, but more than anything it will help you find the price range. This step here will look the most alike to your traditional pricing methods, but allows for a better comparison of features than the compare 3 method and uses a true trendline, rather than the price per square foot line.
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STEP 2.1: Find Comparable Recently Sold Properties & Market Value Trendline STEP 2.2: Establish Pricing & Competitive Ranges LOREM IPSUM STEP 2: ESTABLISH VALUE BASED ON HISTORICAL TRENDS Pricing Range Finding the pricing range refers to the potential dollar range that your subject property would be worth based on past sales. At this point, you will find a price that is fairly accurate but not yet Competitively Positioned to tap into market factors. The idea of finding a range, then letting the market forces tell you where to price the listing is a new concept to many, but it’s powerful. Understanding Competitive Range Using Buyer’s Eyes Buyers eyes refers to how buyers see the market and how their search is done when home shopping. When you think about a buyer, they usually aren’t just searching for a certain neighborhood or one dollar amount. It’s almost always a range, and a broader area. This broader range is what we call the Buyer Zone. Where else would a buyer look if your home showed up on their search? There are exceptions to this of course but that is in the minority of cases. So at this point, we put ourselves into the shoes and mind of a buyer and think, what range of search would a buyer use (using our price ran- ge and neighborhood as a guide) that could include our property? We use that information to do another search based on a wider area and price range to find competitive data.
STEP 3: COMPETITIVELY POSITION THE HOME & PRICE FOR MARKET VALUE
STEP 3.1: Understand the Market Factors STEP 3.2: Competitively Position the Price LOREM IPSUM
Desirability: The buyer’s preference to purchase in a certain area or neighborhood over other similar areas or neighborhoods. Timing: The months of the year when an area or neighborhood is most actively closing homes. Momentum: The current market’s favoring of value toward buyers or sellers. Opportunity: The availability of a buyer and a seller being able to sell a home in the next 90 days. (This market factor is the takeaway you’re looking for with Absorption Rate Pricing, but we have a better way to show this information.) Visibility: The ability for buyers to find a listing in their search and easily see it.
These are the main factors we account for when we go to Competitively Position the home for needed value. Now I should make a quick point here. I’m not saying lowest dollar price when I say value. I’m saying
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when you bring in all the factors of historical value and the main factors of the market and you look at two homes, ours is the better value, even if it’s a higher price. To do this we need to make sure we account for how these market factors, specifically our Momentum, Opportunity, Timing, Desirability and Visibility effect that perceived value. All of these can be very easily shown and will be very easily understood when we go through this process.
STEP 3: COMPETITIVELY POSITION THE HOME & PRICE FOR MARKET VALUE
STEP 3.1: Understand the Market Factors STEP 3.2: Competitively Position the Price LOREM IPSUM
Once we have these factors it’s time to combine positioning to get to the best value.
We’ve done our search, found the competitive data, and are looking at the homes that are currently available for sale. These are homes that are available for sale in the price range where our buyers will be looking. If a buyer was doing a theoretical A or B situation they would be looking at that house and our house and balancing the pros and cons. Then they decide which one to put their offer on. So what we need to do is look at competition and position our home to win. We want to have buyers putting offers in on our home. Now that’s not saying we are going to price super low, but we are going to maximize our value in the eyes of buyers so they see we are a fair price for what the property offers and beats the competition. STEP 4.1: Convey the Information to Your Sellers STEP 4.2: Convey the Information to Potential Buyers LOREM IPSUM STEP 4: PRESENT THE COMPETITIVE MARKET ANALYSIS Once you’ve done this Competitive Positioning , and once you’ve found the correct price for the value in the market, the next thing you have to do is convey this information to your sellers. They must fully understand why you’re representing this price to them and why you’re recommending they position their home accordingly because if they don’t agree and they don’t take your advice then it doesn’t matter. So you must be very good at helping them understand that and the number one way to do this is to master your presentation. It is also important to rely on the process. Make sure to walk them through the exact thinking process and you will find that they tend to agree with you or even in the end tell you the price that you were thinking.
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Next, you convey this value and the understanding of the home’s price in today’s competition and today’s market as a home that buyers should put offers on your listing. You do this by using visual aids in open houses or as counter displays during showings. These simple visuals sell the idea of the value and eliminate key buyer fears. STEP 4.1: Convey the Information to Your Sellers STEP 4.2: Convey the Information to Potential Buyers LOREM IPSUM STEP 4: PRESENT THE COMPETITIVE MARKET ANALYSIS
LOREM IPSUM (IF NEEDED) STEP 5: RE-POSITION THE HOME
STEP 5.1: Know When to Re-Position & How
This final step is repeating the third step of the Competitive Positioning Process and is very important. If major market changes occur, or the listing hasn’t sold and you’re at risk of missing the Average Time to Close line, you will need to re-position the home to ensure you’re still in a Value Advantage Position . To do this you’ll redo the competitive search and re-look at your market factors.
Now that I’ve quickly written out what this process is in total, let me show you how it works using an example with real data.
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04 The Process In Action
YOUR EBOOK TITLE THE NEW CMA: COMPETITIVE NOT COMPARATIVE
THE PROCESS IN ACTION
At Focus 1st we are built on the phrase, “Showing is better than telling.” To best explain this process we are going to competitively position a home ‘live,’ or as live as we can in this format. I believe learning through doing things is one of the best ways to truly understand a new skill. We are doing this by walking through a real-world example. Let’s jump into the first step of this process using the home: 1234 Address St, Fort Collins, CO, as our example property. *As a quick note, you’ll probably guess the house at 1234 Address St is a fictional property. It is based on a real home, and all the data shown will be real data for the neighborhood I’m just keeping the real address off the book for homeowner’s privacy sake. STEP 1.1: Know the Subject Property STEP 1.2: Know the Wide Area Appreciation Trend STEP 1.3: Understand the Neighborhood Trends & Their Implications LOREM IPSUM STEP 1: UNDERSTAND THE AREA PATTERNS
Address: 1234 Address Street, Fort Collins, CO 80525 Neighborhood: English Ranch Total Square Feet: 3500 ft2 Finished Square Feet: 2500 ft2 Lot Size: 0.17 Acres
Bedrooms: 4 Bathrooms: 3 Year Built: 1996 Condition: Well taken care of, updated appliances, new furnace & water heater, original flooring and fixtures, original roof Features: Fenced yard, granite counters, full basement, 2 car garage Date Of Search & Pricing: Early May, 2023 Neighborhood Amenities: All houses fully fenced yards, mature trees, neighborhood park Layout of Home From Google Images: Interior road, not corner or cul-de-sac, not main thoroughfare, house is centered on lot with neighborhood standard large backyard and medium front yard, with multiple mature trees. *Google Images with the satellite view will give you all this information.* Last Sold Date: 1/1/2013 for $485,000 And just like that we have accomplished Step 1.1: Know the Subject Property . Obviously if you are doing this yourself it may take a minute to pull up a past MLS sheet or property records but it shouldn’t take too long.
Now that we know the city name from Step 1.1, let’s jump into the Step 1.2.
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STEP 1.1: Know the Subject Property STEP 1.2: Know the Wide Area Appreciation Trend STEP 1.3: Understand the Neighborhood Trends & Their Implications LOREM IPSUM STEP 1: UNDERSTAND THE AREA PATTERNS
Remember we are using the Federal Housing and Finance Administrations appreciation data.
As you can see the columns each represent one year of appreciation. Green means appreciation and red means negative appreciation or depreciation. This number is calculated by taking the value of a home that sold and then whenever it sells again using that information distributed across the years to find overall appreciation. This is a very accurate way of looking at things versus just looking at home prices because a lot of times new construction can skew values one direction or another. This information is just looking at resales which gives us a great indication of where values have gone.
We can use this information to check ourselves at the end to ensure we are generally correct, but again this is for the city-wide area, not the neighborhood.
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STEP 1.1: Know the Subject Property STEP 1.2: Know the Wide Area Appreciation Trend STEP 1.3: Understand the Neighborhood Trends & Their Implications LOREM IPSUM STEP 1: UNDERSTAND THE AREA PATTERNS
This is the Odds of Selling graph. Now it’s made very simply by looking at the last 12 months of homes that have either sold, are currently for sale, currently under contract, or went on the market and ended up withdrawing or expiring. We take that number and we can very quickly and easily calculate the odds that the house will sell. Now before we look at the numbers, just note that we do include under contracts as part of the sold. When we do this calculation for the Odds of Selling , in most cases a house that is under contract will close. That’s obviously not true 100% of the time, but we end up including that. This graph is very easy to understand and very easy to explain because it’s a simple bar chart. The Odds of Selling also gives you a good indication of the desirability of that neighborhood. Areas where homes that go up for sale and are highly desired will have a much higher odds of selling. This is a key component when it comes to positioning against other homes in the same price range but maybe in
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a different area that may not be as high of odds or might be higher odds. This helps guide us when it comes to positioning to get ourselves at the best market value to elicit showings and offers. For our example home, according to the graph we have 95% Odds of Selling for the last year. This means there is extremely high Desirability for this area!
*It depends on each area what constitutes high or low odds of selling, but in most cases anything over the 70% range means your area is desired.
Average Time To Close Properties in 2022 English Ranch (Fort Collins)
The Average Days Before Closed is 40 Days, the Average Closed Price is $641,600.
$400,000 $450,000 $500,000 $550,000 $600,000 $650,000 $700,000 $750,000 $800,000 $850,000 $900,000
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Days To Closed
Source: MLS, Information deemed reliable but not guaranteed., Data Collected: 4/25/23
The Average Time to Close graph is a very easy way to look at how long it takes homes to sell. It’s calculated by looking at the homes that sold and looking at how many days they were on the market before closing. As you can see in this example, homes sold in an average of 40 days. The other cool thing you can see in this graph is that it doesn’t matter whether the house was higher priced or lower priced, they all sold around that window of 40 days. This is an important implication because it stops the mindset and false belief that many agents and many people have that more expensive homes take longer to sell. On top of that, this really helps start the process of helping the customer understand and anticipate the selling process. Accounting for 30 days for contract length, you can expect a contract in about a week and half. So, if you release this listing to the market and there’s not an offer on day one, or even week one, some people might panic and might feel a lot of stress. However, if your customers know that that’s the expected timeline it’s going to alleviate a lot of that and it’s going to alleviate a lot of the calls that you’re going to have to deal with to try and sooth the situation. This knowledge also helps you plan for your customer’s next move. You can tell how long ahead they should list before looking for a house to buy so they can be on the market and listed correctly. For our example home, looking at the Average Time to Close graph we can see; Average Days to Close is 40 Days.
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*We’ll touch on this again later, but looking at the Average Time to Close graph we can see that almost no homes are selling after 60 days. What that means for us is that if we are not under contract after 14 days, we will need to reposition. Let’s move to the next neighborhood pattern graph, the Buying Pattern . When looking at this graph what you can see is that these columns are representing the last 12 months of activity in that area. Each column is a certain amount high showing the number of homes that have sold. The blue columns show the most active months for sales, the grey are home sales but not in the most active window, the empty months had no recorded sales.
The Buying Pattern For Your Area - 2022 English Ranch (Fort Collins)
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Number of Properties Closed per Month
Source: MLS, Information deemed reliable but not guaranteed., Data Collected: 4/25/23
The most active selling window is from APRIL – JULY. Using this graph and our example search time of early May, we can see that when combined with our Average Days to Close of 40 days, we see we have great timing.
We now have a good idea of the Neighborhood Patterns . We’ve started from city-wide and zoomed in. Now, let’s take a look at comparable recent sales.
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Value based on historical trends is not market value. Market value is made up of two parts: the value we’re talking about in this step and the value that comes from a buyer’s perception of the worth of the home compared to competition. Basically, what others are willing to pay for it. When it comes down to the end of this whole process we want to have a competitive value that either matches, beats, is within a close enough range of the historical value or demonstrated value that makes buyers want to put in offers. So what that means for us is we can’t start necessarily with just pure market value, we have to start with demonstrated value and then discover from that small range where a competitive value would fit. STEP 2.1: Find Comparable Recently Sold Properties & Market Value Trendline STEP 2.2: Establish Pricing & Competitive Ranges LOREM IPSUM STEP 2: ESTABLISH VALUE BASED ON HISTORICAL TRENDS The historical value is made up of five main factors: Location, Price, Size, Condition , and Special Features and Amenities . Now there are other market factors that are still missing here such as Timing, Desirability and Momentum as well as other economic factors like interest rates etc. However, the reason those are not shown here is because those get into the competitive standpoint. The goal here is to look at these main five factors with a comparative mindset to give us a starting point in a good range to then add in those market factors while looking at the competition in our price range. We do this by using the Scattergram. The Scattergram is a very simple way to look at price versus size in a certain area while also factoring in special features and amenities. We find a trendline that we can use a good basis to then adjust up or down for our pricing range, which will eventually lead us to finding a competitive range. Let’s do this by using our house and the information we found on our MLS search. Create a Scattergram showing recent sales and the Market Value Trendline.
Property Price vs. Finished Square Feet (FSF); From 8/10/22 to 3/31/23 Scattergram Pricing For: English Ranch (Fort Collins)
Properties Closed
Fair Market Value
$770,000
$720,000
$670,000
$620,000
$570,000
1,500
2,000
2,500
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3,500
4,000
Finished Square Feet
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