By Markian Melnyk, Realtor
The multiple listing service (MLS) is a fantastic tool. A realtor can use it to help a seller understand more about homes currently for sale in their community, past sale prices, days on market trends, and innumerable other data points that can help to establish the value of a client's home. The MLS helps to establish a range of possible values. But it’s only just a starting point.
Begin with an MLS-sourced “objective” price range and then adjust based on a combination of site-specific factors (e.g., see my blog post on Valuing the View), and other factors like the seller’s need to sell. Let’s dig into it.
1. Top-line MLS data. There’s so much information on the MLS that it can be hard to not get overwhelmed. Start with statistics on comparable properties:
The closing prices for recent sales
The number of current active listings
The number of pending sales and the trend of days on market
2. Perception versus alternatives. The MLS provides a rough guide to property condition, but it is necessary to physically visit multiple properties in a neighborhood to understand how the subject property will present to buyers in comparison to other homes on the market. When you visit a home, pay attention to:
Condition and the level of the finishes. Is it move-in ready? That is worth a lot to buyers with busy lives.
Interior layout and size. Does the space flow and are the rooms a usable size?
Lot characteristics and parking. Considerations such as privacy, the streetscape, neighbors with junk in their yards, outdoor living potential, and parking availability are significant differentiators.
3. Variations within a neighborhood. Different blocks in the same neighborhood can vary in character. A home might be near a busy, noisy street, walking distance to a metro stop or amenities, or just inside or outside of a desirable school boundary.
The average days on market metric and the inventory level, i.e., the number of homes on the market as compared to historical levels, can tell us if buyers or sellers have more pricing power. A fast market with low inventory allows sellers to be more aggressive with pricing. In contrast, a slow market with significant inventory allows buyers to be selective. Homes that are perceived to be overpriced will sit longer on the market with low interest. Pricing close to value is especially important in these markets.
Finally, there is a psychological element to pricing strategy. Buyers will typically have a price bracket in mind and limit their search to homes within their bracket. For example, a house priced at $805,000 will escape the radar of buyers searching in the $750,000 to $800,000 bracket even though it is less than 1% above their target price. In contrast, a strategy that slightly underprices the home might attract strong interest because of its perceived quality and value, generate multiple offers, and ultimately capture a higher price.
New things attract interest. This applies to listings too. Overpricing risks losing the initial audience of buyers who might have been interested but omit the home from their shopping lists. The overpriced home may sit with few showings and, even when the price is later reduced, interest may not improve because a large “days on market” number may suggest to buyers that something is wrong with the property.
The seller’s priorities also affect pricing. Some sellers need a quick exit while others have more time and can patiently wait to maximize their price. For example, compare an estate sale to a sale by an owner that has lived in a home for 30 years. The former is likely to be driven purely by financial reasons and will favor selling quickly to reduce carrying costs. While the latter seller’s emotional connection to their home will probably affect their perception of its worth, sometimes in a way that is out of touch with the market as a whole.
Sometimes the seller-agent’s most important contribution is to add objectivity. A discussion with the seller that touches on the factors described above can help the seller to see their home in the context of other homes on the market, helping them to position their home as a good value. In short, a strong pricing strategy blends key pieces of objective data, insights into the subjective context of a home and its neighborhood, and awareness of the psychology of buyers and sellers.
