I Learned About Real Estate From That: Pricing the Property Right

2022-12-27T20:07:48-05:00

Pricing the Property Right

Even the best real estate schools have the same challenge: How do you teach the material a real estate agent must know to pass the state exam when you know that much of that information will never be needed in their new real estate career? How do you offer a robust real estate education beyond just teaching an aspiring real estate professional the terms in a real estate dictionary or the exam prep textbook?

At Garden State Real Estate Academy, we rise to this challenge by having a team of instructors who are all real estate agents and can discuss real life scenarios to expand on the material they cover. With this in mind, you’ll be amazed by the amount of real estate education you get from our courses.

Of all the things we must teach people who come to us seeking an exam prep course for a new real estate license, one of the most important lessons not found on the real estate exam is how to price a property correctly when you represent the seller.

It’s a bit like the story of Goldilocks: Price it too high and buyers will avoid the property, which leaves it on the market too long and leads people to believe there is something wrong with it. Price it too low, and you are doing a disservice to your seller client, to whom you have a legal and ethical duty of selling their home for the highest possible price.

The key to selling real estate is to think the way Goldilocks chose her porridge: Just right.

How to Determine the Listing Price for a Property

Picking the Right Comps Is Critical

One of our real estate courses spends a great deal of time showing aspiring real estate professionals how to pick the right comps to price a home. “Comps” is short for comparable properties that have similar characteristics as the property you are trying to sell. You should look at properties that have sold and transferred title. Do not include properties that are under contract, but have not yet closed, or those currently for sale.

Use comps as close in every way to the “subject property” (the one you are calculating the price for sale). That means those that have settled in the last 90 days and are in the same neighborhood, similar architectural style, age, square footage, condition, etc.

Making Adjustments

It is not likely you will find three identical cookie-cutter homes that have settled in the last 90 days, so you will probably have to expand your search criteria to find three suitable comps. Go back 6 months looking for sales. If the subject property has a finished basement and none of your comps have finished basements, look for homes that sold that are similar in most other respects, but which unfinished basements.

You need to make adjustments to the comps to bring them as close as possible to the subject property. If the average home in the neighborhood with 2.5 baths sold for $10,000 more than otherwise-similar homes that had 1.5 baths, you can deduce that the value of a second full bath is about $10,000. You would therefore look at the sale price of your comp with 1.5 baths and ADD $10,000, meaning, “It sold for $280,000 with 1.5 baths, but if it had 2.5 baths, it would have sold for $290,000.”

Do this for all the features that differ from the subject property. Remember: always adjust the the comps, never adjust the subject property. Once you have finished the adjustments, take the sold price and add or subtract the different adjustments to arrive at an adjusted sale price. The three (or more) adjusted sold prices should be the basis for your price recommendation for the subject property.

How to Handle Clients Who Insist They Know Best When It Comes to Pricing

Customer service is certainly important. However, there are times when the real estate agent shows up for a listing appointment having spent hours meticulously calculating the best listing price based on solid comparable sold properties.

The real estate agent explains the local market conditions, illustrates the comps, and shows the methodology they used—the same appraisers have used for decades—to determine the likely selling price. Say that number is $425,000.

Then the seller says, “I want to list at $500,000!” The agent asks how the seller came up with that number, and these are often the responses:

  • “I’m not going to give my home away.”
  • “My neighbor/sister in Denver who’s a Realtor®/Tibetan guru told me it is worth $500,000.”
  • “I had a pool added four years ago, and that cost me $40,000, so you should add $40,000 to your sale price suggestion.”

Your job as a real estate professional is to explain the risks to your seller of overpricing their home. Ultimately, when a buyer does go under contract for the property, their mortgage company will have an appraiser use the same methods or similar methods you used to determine the value of the property.

Few conversations are as difficult as the one where the listing agent has to tell the seller a week before their settlement that the property under-appraised and they have to either drop the price by thousands of dollars (probably to a price close to what you proposed), or the buyer will withdraw and they will have to put their home back on the market.

Real estate agents need to learn scripts where they can engage with their sellers in a non-combative way to explain why buyers—and buyers’ agents—have so much information and knowledge available to them today that they usually already know the market value of a property they are considering.

Accepting a listing at a price that is way above the value of comparable properties is a waste of time, an abdication of the agent’s fiduciary duties to the client, and a possible ethics violation. More importantly, it can ruin your relationship with the seller, who could go the entire listing period feeling ever more frustrated with the agent that they decide to list with a different agent after the first listing expires.

Learning how to choose comps, determine a property’s value, and convince the seller to agree is just one benefit of choosing our real estate school.

If you are thinking of getting your real estate license, Garden State Real Estate Academy is the top-rated NJ real estate school. If you need a New Jersey or Pennsylvania real estate license, visit www.GSREA.com and click on “Salesperson” licensing classes.

For information on the real estate school’s upcoming New Jersey licensing classes, click here: https://www.gsreacademy.com/pre-licensing-courses/

If you need to earn a real estate license in a state other than New Jersey, Garden State Real Estate Academy also offers online real estate school featuring self-study real estate licensing classes in 21 states through our partnership with The CE Shop. And while New Jersey does NOT allow self-study pre-licensing classes, we do offer self-study pre-licensing classes in 25 other states by clicking here: https://gsreacademy.theceshop.com/pre-licensing.

Garden State Real Estate Academy also offers continuing education courses for those needing to meet licensing requirements or looking to further their professional development. You can check your CE status by clicking here.

As one of the top New Jersey real estate schools, we offer all of the career resources you need to become a successful real estate agent or broker. Our instructors are successful real estate brokers that share their experience and draw from real world examples to teach students the ins and outs of the industry. Look no further to get started with your real estate education!

David C. Forward is a licensed real estate broker and instructor. He was first licensed as a Realtor® 34 years ago. During his career, David and his business partner sold more than 500 homes in South Jersey. He is now School Director of Garden Real Estate Academy, has won numerous awards for real estate sales, is a much-requested public speaker who has addressed audiences on six continents. His 20th book Zero to Hero: Winning Strategies for New Real Estate Agents to Become SuperStars in Their First Year was released this month.

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