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Determining accurate price is key in a rational market

February 23, 2018
By BOB and GERI QUINN - Homing In , Cape Coral Daily Breeze

Last week, we discussed how difficult it can be for someone who is trying to sell their home to make an accurate price determination for their initial listing price, which will put their home in a price range to attract a buyer. There can be a lot of different factors leading to the overpricing of a home and we covered several ways to not only help determine if a home that is listed for sale in Cape Coral is overpriced, but also by how much it may be overpriced. We broke the information down by several price points, because there are different market forces at work at various price levels which can impact the accuracy of these statistical results.

One of the things we touched on is the fact that there is a wide margin for pricing errors in the secondary, or existing home market, because it is an opaque market, meaning that it lacks the transparency of "real time" pricing and information. Unlike with the stock market, where there is a constant flow of public information as stock prices are changing every second of the day, determining the initial listing price and value of a home is largely left up to interpretation by trying to compare it to other "similar" homes. This formula for estimating the value of a home is far from perfect, leaving it wide open to being heavily influenced by the opinions of the various market participants. Since it is likely that these market participants all have varying degrees of experience, expertise and local market knowledge, the end result can be the sometimes wild misses we often see on the initial price estimates for a home.

These types of major pricing errors can be caused by a number of different reasons, one of which is the market participants letting their own self interests get in the way of the pricing process. Some sellers are completely out of touch with the market reality and insist on listing their homes at unreasonably high prices. These homes usually sit on the market unsold for one to three years and ultimately sell for 25 percent or more below their initial listing price. Some real estate agents can also let their own self interests get in the way, as they have it drilled into them that they need to get listings from home sellers in order to survive and be successful in this business. One way for them to beat out their competition is to tell a seller what they want to hear and come in with high pricing estimates for the initial listing price.

This is all just part of the beauty of working in an opinion-based market with opaque pricing. But since our current market is very rational with its pricing, it has its own way of ultimately sorting out the mispriced homes, so utilizing a sound pricing strategy and establishing a realistic price range are critical components in successfully attracting buyers to your home.

Marketability factors, which can be significantly different for every home, are another reason why it can be difficult for a seller to price their home accurately. Receiving an honest and realistic opinion about the marketability of a home is an important aspect in determining the initial price range on a home. Because this process involves another "opinion," it can also lead to a wide margin for pricing errors. Sometimes these marketability issues, which can have a negative impact the ultimate sales price of a home, are easy to identify and other times they may not become clear until we start receiving feedback from potential buyers.

Last week we also mentioned the importance of running pricing comparisons to the overall Cape Coral market, as well as to a specific neighborhood. This is a different approach for a pricing estimate than the typical Comparable Market Analysis, or CMA report, provided by virtually every real estate agent, which compares your home to other homes in the neighborhood with similar features. Our additional market analysis, which we use to establish more detailed pricing models for both buyers and sellers, analyzes the current median sales prices based on your specific property type, such as a gulf access canal home or a dry lot home. It allows us to compare the price of a particular home to the overall market, as well as to a specific neighborhood and then helps us analyze if homes in a specific neighborhood tend to sell at a premium or a discount to the market. This is an important step in trying to establish a realistic price range on a home that is likely to attract offers from a buyer.

Recently, we were able to utilize this type of information to provide guidance to a seller that their home was priced right to attract a competitive offer, but it would just take a bit longer for the right buyer to come along because of a couple of marketability issues. It was a beautiful and well maintained home, with a unique floor plan on a large Cape Coral lot. The unique floor plan and unusually large lot reduced the pool of potential buyers for this home, making it more difficult to sell, but the pricing data we had on the home indicated the listing price was in the right range to draw an offer. So instead of looking to make further price reductions, our message to the seller was to try to wait for the right buyer, which is exactly how it played out.

We have also utilized these additional pricing models recently to show a seller that homes in their particular neighborhood tend to sell at a 20 percent premium to the market, but they will face some marketability issues that could result in a lower price for their home. While in a different section of the Cape, we were able to show another client why their neighborhood tends to sell at a fairly substantial discount to the market, and that they needed to be careful in the type of spec home they were building, because they would probably end up getting a lower price than they were expecting, because of the weaker pricing power in that area.

By utilizing more specific and factually accurate market data to support pricing opinions and help reduce emotions, the process of buying or selling a home can become a more rational, realistic and straight-forward business transaction.

(The sales and market data for this article was obtained from the Florida Realtors Multiple Listing Service Matrix for Lee County, as of Jan. 20, 2018, and it was compiled by Bob and Geri Quinn. It includes information specifically for Cape Coral single-family homes, not including condominiums, foreclosures, or short sales. The data and statistics are believed to be reliable, however, they could be updated and revised periodically, and are subject to change without notice. The Quinns are a husband and wife real estate team with the RE/MAX Realty Team office in Cape Coral. They have lived in Cape Coral for over 38 years. Geri has been a full-time Realtor since 2005, and Bob, who also holds a Certified Financial Planner designation, joined with Geri as a full-time Realtor in 2014. Their real estate practice is mainly focused on Cape Coral residential property and vacant lots.)



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