Using The CMA as Your Primary Pricing Tool
by Dirk Zeller
Friday, June 15, 2012
I believe that the primary purpose of the CMA is to educate you, the agent, about the prices at which comparable homes are being listed and sold. Only by completing a competitive market review and analysis can you obtain certainty and conviction about the value of the property you're getting ready to list. With this knowledge, you'll be able to proceed with confidence as you share your view of the marketplace and persuade the seller to accept your home pricing recommendation.
Factors that contribute to a CMA
A competitive market analysis involves a review of all homes in your marketplace similar to the one you are selling that have recently sold, have sales pending, are active listings, or recently expired. Activity in each of these four categories contributes to your analysis, however, some categories deserve greater importance or weight in your pricing assessment.
Often referred to as "solds", sold properties provide the most valuable demonstration of market value. They are properties for which sales goals have been accomplished, transactions have closed, and ownership has transferred. The sellers have their cash in hand. When you study "solds", you can be certain that the prices reflect values that won mutual consent from a willing buyer and a willing seller. Use these properties as the cornerstone of your presentation of value to the seller. Use entries from all other categories primarily to support the pricing position you recommend based upon comparable sold properties.
Especially in markets undergoing active appreciation or depreciation, review only homes that have sold and closed in the last six months. In some markets it would be wise to narrow that to three months or less. Sales before that period probably won't be an accurate indication of current values.
Pending properties are homes that have been secured by a buyer, but the sale hasn't yet closed, and ownership has yet to transfer. Deals linger in the pending stage for 30 to 60 days. When you study the pricing of comparable pending sales, realize that the information is less reliable than that of sold homes for these two reasons:
- Anything can still happen to derail the transaction. The buyer can walk away from the deal. Financing could be denied if either the owner or the house doesn't meet lending requirements.
- The price on a pending deal is the price the seller initially asked. You won't know the final closing price agreed upon by the seller and buyer until the deal is completed. In some cases, the closing price is substantially less or more than the asking price.
If a pending home is very comparable to the home you're selling, and it's pricing is very important to your CMA, contact the listing agent and ask if he or she can tell you whether the seller received close to the asking price. Expect only to receive general information. The agent can't give you the sales price due to fiduciary responsibility owed to the seller, but you will likely receive enough information to help qualify the information received from pending sale documents.
Your seller's eyes will wander straight to this part of the CMA because it usually contains the highest prices in the report. Without good counsel, sellers will look at the prices being asked for other homes and want to place their price right at the top of the range. To avoid unrealistic expectations, take the following steps:
- Explain that active properties are accompanied by asking prices – which will be affected by the outcome of buyer negotiations and final price adjustments.
- Present comparable active listings as a good indication of the level and intensity of current competition for the buyer's dollars, rather than as a clear indicator of current house value.
- Remind your sellers that, while they have only one house to sell, the buyer in a neutral market has many homes to choose from. Use active listings to help competitively position each house within the current available inventory.
These are homes owned by sellers who, in effect, lost the sales game. In a CMA, they provide a very good bookend against the prices of sold properties. By presenting both categories, you can show your seller the pricing path to success, as indicated by sold properties, and the path to failure, as indicated by expired listings.
For an especially instructive pricing example, find an expired listing that also shows up in your sold category of properties. Use the example as a graphic illustration of the first-time failure that can result from over-pricing, and the success that results from on-target pricing.
Taking CMA results with a grain of salt
Remember the old saying, "Stop and smell the roses"? I suggest you make it a mantra during the CMA process. At some point during your review of real estate records and home photos and computer analyses, take a break and get out to actually look at comparable properties in order to form a good old-fashioned first-hand opinion.
Don't expect data sheets and digital photos alone to present the strengths, weaknesses, and permutations of each comparable property. Some homes just plain feel better than others, and that's a distinction you have to experience live and in real time. Follow these steps:
- To view active properties, start by making an appointment with the seller.
- For a pending property, you can call the agent or the owner to gain entry in order to evaluate the house against your seller's home.
- Call owners for permission to view homes that have recently sold or that have expired listings. You might even manage to turn a tour of an expired listing into a prospecting preview. Who knows? Play your cards right, and your research for one seller's CMA might secure another seller's listing.
- If you can't gain access to a home, as a fall back position take a few minutes to drive by any of the comparables you're studying. The drive will give you a chance to review the neighborhood and the exterior condition, landscaping, and curb appeal of each property.
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