YOUR EBOOK TITLE THE NEW CMA: COMPETITIVE NOT COMPARATIVE
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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