The Real Estate Law Podcast

9 - How to Set a Listing Price for Your Home

April 22, 2021 Jason Muth + Rory Gill Season 1 Episode 9
The Real Estate Law Podcast
9 - How to Set a Listing Price for Your Home
Show Notes Transcript

In this episode, we're talking about how to price your home for the optimal sale price.

Even in a hot real estate market - where properties receive multiple offers before the Open House - pricing strategy is key.

Price too high? You'll come across as greedy and some buyers might not even see your listing based on their search criteria.

Price too low? You will wonder how much money you left on the table and your clients might wonder why they even needed an agent in the first place!

But pricing it just right - you'll maximize interest, field multiple offers, and be in the driver's seat when you're considering who should be the next owner of your home.

We offer a number of ways to pricing strategies, including:

  • How to Determine Your Home’s Value
  • The 3 methods of appraisals
  • Picking comps
  • Pricing Strategies - Going Low, Going High, Just Right

Learn all of this and more!

Join Jason Muth and Attorney / Broker Rory Gill of NextHome Titletown and UrbanVillage Legal in Boston, Massachusetts for another episode of The Real Estate Law Podcast! 

Support the show (https://www.urbanvillagelegal.com)

Speaker 1:

We are talking about pricing and we're talking about determining value of a home that is about to be listed.

Speaker 2:

You found the real estate law podcast because real estate is more than just pretty pictures. And law goes well beyond the paperwork and courtroom argument . If you're a real estate professional, looking to build real estate expertise, then welcome to conversations and discover more@realestatelawpodcast.com.

Speaker 1:

Welcome to the real estate law podcast. I am Jason Meuth and we're once again here with attorney broker Rory Gill .

Speaker 3:

Well , it's been awhile . How are you, Jason?

Speaker 1:

Yeah, it certainly has. Yeah, we're um, we're just , uh , commenting about all the different vehicles that are going by and both of our , uh , current workspaces. Uh, I just, I think we're in the flight path here where I'm coming from, which is in city point in Southie you mentioned , uh , today is street sweeping day , uh, along with all the trucks that seemed to go by your office on eighth street in Southeast , but that's city living. Right?

Speaker 3:

You'll hear all the street sweepers, all the trucks, all the rain. It's a , it's a good day for recording a podcast.

Speaker 1:

Yeah , isn't it? Yeah. Yeah. We haven't, we haven't exactly gone into the studio or a walk-in closet where there's tons of tons of , uh , hung clothing nearby that really muffled the sound. Uh , we're just going straight at it, taking it to zoom where coming from two different rooms and hopefully , uh, the knowledge will supersede some of the audio , uh , issues that surround us. Not that the really issues. I mean, these days it's so much easier to record, isn't it? I mean, you used to have to, you know, bunker yourself away in a studio, but you know, everyone's just so used to the zooms where you just turn the camera on and go, the noise makes it authentic. It does well today we are going to be looking into the current and kind of into the future and I brought the kaleidoscope, okay .

Speaker 3:

The future. It just happened to be , uh,

Speaker 1:

Background. So I thought that, well, I know exactly we have all these things hanging around the house these days. Um , we are talking about pricing and we're talking about determining value of a home that is about to be listed. And I mentioned the future because you know, you have to see where the market is today, but also where it's headed. It's a careful dance, right?

Speaker 3:

Yeah . So we're taking, we're going to take a look at , um, you know, setting your homeless values . The first thing that we get asked by any seller client , um, even by our clients, you know, what exactly is the place worth? And it's more of an art than an exact science, but we can walk through exactly how you come to a good understanding of your home's value. It's a multi-part process. Um, it's never a hundred percent perfect because ultimately your house is worth what people are willing to pay for it, but we can come up to , we can come up to a pretty good estimate of what that is, right? That's like any commodity,

Speaker 1:

Right? If there's no buyers, then you've got to lower the price or figure something out. Um , something is worth as much as someone's willing to spend at this , a lot of buyers, well then it's probably worth more than you thought about it and worth. And you know, we'll talk about current market. We'll talk about how you go forward with comparative market analysis for property. Uh, I could share some personal stories as well to try to make a little more relatable. Why don't we start with, you know, you get a phone call where an inquiry from somebody, some of that, you know, saying, listen, I'm thinking about listing a property. Can you help me figure out what it's worth? Like what , what should we listen to that? What are your next steps as a broker?

Speaker 3:

So the first thing you want to do is understand their reasoning for selling in the first place. That's how you can help them out the purchase price and what they sell it for is kind of a by-product of that. Um, and then just the market conditions overall, but it's going to be an easier job to put together a really good, accurate price. If you're familiar with the market and you've been paying attention to the trends, of course you can do an analysis for something out of your home market, somewhere else in come to a well informed decision. But the closer you are to the pulse of the market, the easier it's going to be to put together , um, an understanding of the home's value, kind of just looking at how that works overall. When appraisers go out there to come up with the official , uh , home valuation for you , um, they generally use a few different methods. Three, there are three big methods. One is taking a look at what the rental income is going to be, and then reverse engineering. What a good purchase price would be for the property. That's pretty akin to business valuations commercial property though. Yeah. So that's a preferred method for, for commercial as well. And then the other method, which is rarely used, but sometimes it makes sense in rural areas is the cost to rebuild. Um, you know, how much would it cost to just rebuild a property that kind of presupposes that the land itself is not the main point of the value

Speaker 1:

If your bar , if your barn caught fire burgers .

Speaker 3:

Yeah, exactly. So that's kind of the, you know, it one way, and even when they take that one into consideration, it's never the , um, the guiding light. It's not really the , the final arbiter of what the property value is, but they go through that calculation so that it informs the overall value. It's often those two that I mentioned together, although I'll tell you, they're not regularly used for small residential real estate, the rental method and the replacement method. They often go hand in hand , um , together on for commercial and larger property analysis , um, to , to inform the value. But the key area we're gonna talk today is , um, for a smaller residential, we pretty much only use the comp method, the comparable method, where we just take a look and see what other similar houses sold for in the past, in recent history.

Speaker 1:

So the comp method does not mean go to Zillow and see the Zestimate, and then just send that over to you. Right?

Speaker 3:

No, but that a lot of agents will take a look the other way and pretend that that's of no value. Um, I disagree , um, for two reasons, one, they are working on the comp method. Um, the , the Zillow is estimates , um, and the other models that are out there. So they are drawing the, are somewhat informed by the same things that are real estate agents going to look for when they do a more professional estimate. And they're also important to know because consumers and buyers in the market are going to reference that we can pretend that they won't. But those of us who are working in these markets know that buyers are going to look at them. So I try to ignore this estimate when I do my home valuation until the very end, but it's something that I don't ignore altogether. Um, it does hold value, but yes, there are, there are many more steps. They don't know. Zillow does not know the interior of your home. It doesn't know all the details of your home. It doesn't know the history of it, but it is a starting place for a lot of consumers when they're looking at , um, at homes and people track there's estimates to know how, you know, as if it were hard and fast on their spreadsheets, you know what , um,

Speaker 1:

Home is worth. It's hard not to. I mean, I do, you know, but I realized that it it's , it's just an estimate. It just kind of gives you a ballpark, but, you know, Zillow has no idea if I just replaced the , uh, the hot water heater with a tankless system, or I just replaced the roof, or I just renovated the kitchen, you know, they don't, they don't know those things to your point about, you know, what's inside there, they're using comps from the rest of the market, the neighborhood, the direction, but it is hard to ignore that. I mean, like rarely are you going to find a buyer or a seller these days that does not at least have that number in their head? Like if you find those folks, you know, they're , they're not super informed unto themselves. I mean, maybe they're, you know, older and, and technologically, they just, you know, don't take a look at what's on the internet, but you know, younger buyers, buyers my age, you know, we're all looking online.

Speaker 3:

Yeah . And I'm not one of the brokers that will tell you that the, this estimate is completely valueless. It's not, they have been getting better year after year at their algorithms. Um, so it is something to take a look at, but , uh, it doesn't replace doing the, doing the work , um , and doing the hard work of taking a look at the , uh, of knowing the market and taking a look at what's out there.

Speaker 1:

Okay. Now, what are some other things that you would have a look at, you know, with, with the comp method, like how do you pick the comps that you are going to use for a potential client ?

Speaker 3:

So you want to get as similar as possible, but still be able to find enough data to , to work. So if you have, you know , uh , an oceanfront mansion, that's the only one of its kind, it's going to be a very difficult job to pull really decent comps for that property just because they don't exist. But if you're looking at a neighborhood in Boston with a standard sized condominium unit, you'll probably have plenty of comms to work with , um, and give you a much more detailed picture it's out there. So the , the property type is going to really matter there when I'm looking for comps, I'm looking for things that are similar in location as close to the property itself as possible is great. Um, that's the, in many ways the key variable, but we also want to look at properties that are of similar size. You know, we don't want to just take a property it's twice the size and cut the price in half. That's not how it works. Um, in Boston, we have a diminishing return per square foot. So a property that's half the size is going to be worth more than half the value of a, of a similar situated comparable. We also want to take a look at what amenities it has, because those are some of the things that are going to be outside the [inaudible] statistics. We have the number of bedrooms, bathrooms on square footage, but we want to also take a look at some of the , um, the things that are outside the core calculations, you know, roof deck views, the level of the home that it's on number of parking spaces, things that are a little bit outside of , um , those core metrics. And then there's the subjective angle of it, the comparing the condition of the property. Um, and we do that by looking at photos and reading through the different listings that are out there, but we want to find properties that are as similar as possible, knowing that we'll never find or rarely ever find the perfect comp , um, to , to set the market.

Speaker 1:

Do you welcome feedback from a potential seller? Uh, like, do you want them to say, Hey, this one sold, or that one's supposed , we'll have a look at that, or is it, you know, you're looking at the same information yourself anyway , since you have far more detailed tools.

Speaker 3:

Sure. I , I, I certainly welcome the input. The discussion about setting up a sale price is a conversation to have, it's a two way conversation that we want to have. Um, but as the, as a broker, I want to have a really clear picture first , um , so that I can educate the homeowner , um, just to what what's out there and then absolutely welcoming input from , um, from them. But it has to be grounded in reality. Um, there are people who will, you can distort statistics and calculations out there to fit any end . So it's a matter of knowing what's out there and walking through the different things are out there. And it's one of the reasons I also don't look at just sold , um , comparables, that's the core. So I'm putting together a market analysis , um, to set the value of a particular property. I want about 12 comparables. That's what I work with, but maybe six to eight of them are going to be , um, recently sold. Um, in the past few months, I also want to take a look at a few properties that are on the market now , um , that's informative to let us, you know, to let us know what other homes would be competing against that are in a similar , um , situation. And I also want to take a look at some properties that failed to sell properties that were pulled off the market. They expire that the listing was withdrawn or canceled. Um, because that me too , a little bit about what to avoid , um, out there. And when you sit down with somebody and, you know, as a two way conversation, you can just kind of chart down on a , on a piece of paper, you know, at what price point, what happens for each property. So property , um, Mr. Price, a little bit lower, and you can draw the trend to show that the days of Mark is likely going to be lower. And those properties that are priced a little bit too high, those are the ones that are more likely to be a withdrawn or canceled, but you need enough data to , to draw trends. You need enough data to show it. But I do like to look at all the different , um , property types.

Speaker 1:

Yeah. And we're kind of in a weird spot right now. Um, you know, we're w when people are listening to this, you know, who knows everyone might be vaccinated or things might've gone terribly wrong with the vaccine, who knows. Uh, but, you know, I just think it was literally we're recording this just when , um , the Johnson Johnson vaccine was announced , um, just a couple of days ago. So, you know, we're expecting numbers to go up dramatically , uh , in terms of number of people vaccinated, and maybe things getting back to , uh , the normal or close to normal that remembered. But I say that because, you know, many months ago before the holidays, before the election, before vaccines were out, like, I think people's mindset was very, very different. Like, you know, w we heard it over and over , uh , the cities were dead. Everyone was not going to move to the cities. Everyone want to move to the suburbs. And then we saw all the, all the craziness that is happening at suburban homes, just because of the inventory issue, but bring this up because something that might not have sold in the city back in October, November now, you know, who knows our directionally is the city back buyers back here in Boston and Seattle and Portland and New York and other places around the country that that's kind of bad info right now. You know, it's, it's, it's a fact that six months ago it didn't sell, but maybe you relisted again , uh , in a different climate where there might be more confidence , uh, both , uh , you know, medically health-wise consumer confidence rates have not skyrocketed by any means. Uh , during that period of time, maybe you throw things like that back on the market at the same price and see what happens, you know, six months later

Speaker 3:

When it becomes a legitimate challenge, even for the most professional appraiser to determine value, if there are trends that are so persistent, upward , um , in one direction over time, it's tough for the appraisers to actually keep up with the, the comps there. You may have several offers for the same property at the same high price. Um, and that demonstrates by traditional market standards, that , that people are willing to pay that much for the home . So it's worth that, but appraisers still may fall short just because the comparable data doesn't exist in these situations are times and appraisers are anxiously waiting for new properties to close. So they can go back and look at , um , more recent sale prices so they can support a higher appraisal. And that's common even for the most professional appraiser. And this is why real estate agents also need to have a good pulse on the market. You know, if we're in a concern , if we're in a pretty level , um, era, then the comp analysis is near perfect, but it's understanding what exactly is going on in the market will help you either round down around up the , um, the, the data you get from the comps. And I mean, with your micro-neighborhood to matters, what's happening in, in this past year was very different in Dorchester in South Boston versus , um , suburban communities , um, that had a renewed sense of interest that the market trends were very different in those areas. And this year, if things reversed that be very different the other way. Um, but those are things that if you're a professional agent will , will understand

Speaker 1:

And correct me if I'm wrong , um, which is often that I'm wrong, but , um, an appraiser is beholden to the bank, even though the buyer is paying the money, right, because you're basically the bank wants to make sure that the money they're lending is, you know, is the right amount of money that they're not lending for property that you know, is worth, you know, much different from what somebody is willing to pay for it. I was gonna say like, the appraiser is looking backwards, how much, and actually it's maybe to our questions , like how much of the appraisal that the bank is doing to make sure that the underwriting is correct. How much of the appraisal is forward-looking versus how much looks at what has just happened.

Speaker 3:

Appraiser will note the market conditions as to whether things are increasing or decreasing or staying the same, but largely it's , uh, it's past looking , um, seeing what happened recently , um, and they'll reach back , um, only as far as they have to, to come up with three or four comparables, but the more unique the property type, the fewer comps there are available in the market, which means that they may be reaching back for older sales, which makes the data even more out of date for more unique properties for commodity properties. I don't mean that negatively, but homes that are pretty similar to their neighbors. There may be a lot more comps, which will provide more updated , uh, data, which will allow for higher valuations for appraisers. But you're absolutely right. So the a praiser is coming up with the property value. Their role in the transaction is just to make sure that the bank is not overextending itself, that they're not lending out too much money on an asset that , uh , that will be underwater shortly after the sale. So that's the situation that the appraiser's trying to avoid, but when people are doing comp analysis analysis , you also have the seller's agent and therefore doing the same analysis to come up with , um, a listing price that's reasonable that is likely to, to interest a number of buyers. Then you also have a buyer doing the same analysis just to make sure they're not overpaying. So you have the buyer seller and the lender, all hiring professionals to come up with evaluation and they can be way off from each other.

Speaker 1:

Yeah. And then, you know, you get your valuation . Um, and then it goes into pricing strategy, which is going be a whole separate podcast discussion. So we'll , we'll table that for them . Could I share a little anecdote? Like I get to tell a little story now, that's your job here? Excellent. Okay. So my first condo, which was here in South Boston , uh , when it came time to sell it, like I was woefully undereducated as to what was happening in the market. I knew that the direction was going upward, but, you know , I wasn't super into, into real estate at the time. You know , this was before any of the investment properties , uh , that we purchased. But, you know, I remember I went back to , um, the person with whom I bought the house and I said, Hey, listen, I'm going to sell, this is 10 years later. Uh, you know, do you want the listing? And , um, you know, his wife, I think wife at the time, his wife , uh, you know , took the listing, we're working on a price. She came to me as to what she thought it was worth. And I was like, okay, that sounds good. You know, typical price analysis, you know, all the homework that you just said , uh , that, you know, the really diligent agents will do. And then, you know, this is one of those tips that I kind of introduced into the whole conversation that I literally heard from talking to a neighbor. Well, we had a second floor condo in a renovated, triple Decker, my next door neighbor legitimately next door. Also second floor , uh , just happened that they were also about to list their property because they, I think were pregnant or just about to move out to the suburbs and start a family. And the price they came to was 20,000 more than we were planning on listing for. And I knew that our unit was nicer. Um, just cause I knew the building knew when it was renovated. And I was like, huh. You know? So like I went back to , um, to my agent and I was like, they're listing the same unit next door for 20 K more. Um, what do you want to do? Uh , she, she upped the price immediately. So we, we also listed for 20 K more and this was eight, almost eight years ago. At this time. I remember there were like 40 people at the first open house, you know? So you talk about these crazy open houses happening today. It's been happening for a long time, at least in this market had an over asking offer immediately. Like after that first open house. So like had I not had I not heard that or just chitchat over my neighbor? I don't think we would have gotten that little bit extra money at the very end and that buyer ended up falling through, but then we got another backup offer immediately at the asking price. So, you know, who knows if a lower asking price would have led to a bidding war, but you know , I , I have a feeling that, that just literally that conversational tip that Xeloda know about got me 20 K more.

Speaker 3:

When I look , uh, look to set a sale price, I look out and don't just look at, what's been sold in the market and look, what's curling on the market. You may not always catch wind of what's about to be on the market. But if you take a look at what w what you're competing against that weekend for open houses, you're going to revise your, your sale price from what the historical comp say, because that's, you know, that's the heat of the moment. That's what you're actually going up against. So your agent did the right there by, by modifying the list price when new data presented itself. Yeah. Why weren't you, my agent at that one? I wasn't an agent at the time.

Speaker 1:

Ah , maybe that's what you were , you were the attorney though.

Speaker 3:

Yes, I, you went, I remember when we sold it , you were away in Hawaii , um, for vacation without me, but that's a side story.

Speaker 1:

Okay. I guess I kind of remember that a little bit. Yeah. Anyway, that's a whole, that's a whole separate podcast conversation. Uh , right . So we're just , uh , let's put a bow on this one , uh, you know, determining the home's value, you know, what are, what are three quick things that people should take away and remember

Speaker 3:

In this podcast , and this is data-driven so look at the data that's out there. You have a lot to mind through, but it's, you want to just be as objective as possible because, you know, hoping and thinking that your place is extra special, doesn't pan out. So take a look, take a look at the data that's out there, be agile things, change new data presents itself. Um, and it could be good data or bad data for, for your situation, but , um, you know, adapt yourself , um, to , to things that come through. Um, and then remember what we're coming up here is the value of your home. There are strategies that we can get to, and we will get to in a future podcast about , um, whether or not you should list your home for less than it's worth more than it's worth, or exactly what you think it's worth. Um, but you want to come up with a clear sober number of what you think your property is worth.

Speaker 1:

All right. So hope is not a strategy. Trust the data, and then listen to the next episode about pricing strategy.

Speaker 3:

That's correct. So that runs us pretty well.

Speaker 1:

Okay, good. Well, thanks again, Lori . So once again, this is the real estate law podcast. Rory , where can we find you?

Speaker 3:

I am@nexthometitletownnexthometitletownrealestate.com as well as urban village legal, urban village , legal.com.

Speaker 1:

Okay, great. And , uh, once again, my name is Jason Meuth . We really appreciate your listening to the real estate law podcast, and we will see you next time. See you next time.

Speaker 2:

This has been the real estate law podcast because real estate is more than just pretty pictures and law goes well beyond the paperwork in courtroom arguments. We're powered by next home. Titletown greater. Boston's progressive real estate brokerage more@nexthometitletown.com and urban village legal Massachusetts real estate counselor serving savvy property owners, lenders, and investors@urbanvillagelegal.com. Today's conversation was not legal advice, but we hope you found it entertaining and informative. Discover more@realestatelawpodcast.com. Thank you for listening.