March 1st - 2011

The price is right: Learning to price properties with confidence

Accurately pricing a property and listing it reasonably close to market value so that it’s not overpriced is an important aspect of a REALTOR®’s job.

Accurately pricing a property and listing it reasonably close to market value so that it’s not overpriced is an important aspect of a REALTOR®’s job. But equally important is being able to convince your seller clients that your methods are sound and the price you’ve suggested for their property is the right one to get them the most money.

Whether you’re a new or seasoned salesperson, you can sharpen your pricing skills with OREA’s continuing education course, Pricing to Sell. Among other things, the course examines some of the major factors that can affect the value of a single family home and its eventual pricing and sale. The lessons also provide REALTORS® with the tools they need to measure the variables that have an impact on property value, as well as offering tips on selecting comparables under different circumstances.

REALTORS® need to be armed with information and prepared to explain why a property is worth what it is. The seller is entitled to the best price possible and the only way you can achieve that is to truly understand the property. The price you suggest should be based on the facts and evidence of the marketplace. The Pricing to Sell course -- available only online -- is presented in three modules with lots of reviews, quizzes and guidance throughout. There’s even a pre-assessment to help students determine their knowledge level prior to the course. The first module examines issues that can affect price, including over-improvements, surrounding homes, environmental issues, stigmas, easements and encroachments.

The course also covers one of the fundamental steps before starting the pricing process: That is, finding the highest and best use of the property in order to get your clients the best possible price for their property. For example, your client has an old run-down bungalow on a large lot fronting onto a major thoroughfare. You know that the typical buyer for this property would be a developer who would knock down the bungalow and put up a condominium apartment building. Given that your research shows that a developer would pay a lot more money than anyone intending to buy and live in the bungalow, you would want to price the property (i.e. land) for its development potential rather than its use as a bungalow.

A common challenge faced by REALTORS® when dealing with pricing occurs when homeowners say their property is worth more because of a feature which many other homes in the area lack, such as a swimming pool. But a home is only worth more if it has something for which the buyer is willing to pay more. The proof of this comes from an examination of previous sales in the neighbourhood, the selling prices of other homes with the same feature that the owner claims is worth more, and a comparison to prices of homes without that feature. Show these sales to the owner and let the proof do the talking for you.

But what do you do when there are very few properties that offer good comparisons to the home in question? The course examines different methods for selecting comparables in those situations. For example, you could stay in the same neighbourhood but choose recent sales of homes of a different style that have the same size, condition and functionality as the home you’re pricing. Or you could pick a physically-similar recent home sold in a nearby neighbourhood. Whatever you do, you need to pick comparables that would appeal to the same type of buyers as those who would purchase the home in question. Of course, homes that are unique will have greater room for pricing error and require much more work to figure out their value.

The biggest pricing mistake salespeople make is substituting their own opinion for that of the market. One experienced REALTOR® and real estate appraiser recalled that at the beginning of his appraisal career, he valued a house opposite a water filtration plant and immediately thought, ‘That’s got to be a negative -- I’d never live here.’ But what he didn’t factor in was that the building featured Baroque architecture and was surrounded by beautiful parkland. “So it’s not what you think that counts. It’s about what people are paying, and every neighbourhood is different.”

Although developing your pricing skills benefits your seller client, it also makes your job easier as a salesperson. If you’ve done your homework and provided facts and figures that demonstrate how you’ve priced a home, you will make the listing and selling process easier and save time in the long run.

People who are motivated to sell are usually open to accepting information and comparisons on price. If the evidence is clear on why you’re recommending a certain price and your clients still want a higher price but can’t provide a rational reason for it, it may be because they’re not really motivated to sell. You aren’t doing your clients any favour by pricing their property higher than it should be, and they won’t want to hear you say “I told you so” if the home doesn’t sell. Guess who they’ll blame if the house sits on the market?

For more information on the Pricing to Sell course, visit www.orea.com, click on Continuing Education Courses on the home page and scroll down alphabetically through the e-learning courses to Pricing to Sell.

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For more information contact

Ontario Real Estate Association

Jean-Adrien Delicano

Senior Manager, Media Relations

JeanAdrienD@orea.com

416-445-9910 ext. 246

Ontario Real Estate Association
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The trademarks REALTOR®, REALTORS®, and the REALTOR® logo are controlled by The Canadian Real Estate Association (CREA) and identify real estate professionals who are members of CREA. The trademarks MLS®, Multiple Listing Service® and the associated logos are owned by The Canadian Real Estate Association (CREA) and identify the quality of services provided by real estate professionals who are members of CREA. Used under license.

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