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How does a real estate agent set my home asking price?

Peter Miller
The Mortgage Reports contributor

In this article:

How does a real estate agent set my home asking price?

  • Real estate agents compare your home to recently-sold homes nearby
  • Agents will also consider the competition currently on the market
  • Different agents may come up with different prices

There are also several ways you can estimate your home value yourself.

Verify your new rate (Feb 16th, 2019)

The perfect asking price for your house? It depends

How does the best real estate agent in your neighborhood create a sales price? It’s not magic, but there’s a lot of experience and art involved in the process.

A good place to start is to consider the idea that there is no single list price. Different brokers, with different perspectives, may well suggest different values. The important issue for property owners is to understand why a broker suggests a particular price.

Related: What’s my house worth? (4 ways to determine your property value)

Brokers will make a listing presentation in which they give owners a Comparative Market Analysis or CMA. The CMA will outline the proposed sale price, the reason for it, and include a marketing plan explaining how the broker expects to sell the property.

CMA presentations

CMAs used to be modest write-ups given by brokers to property owners. Not so today. CMAs are now generated by specialized software which can look at recent sales and properties currently on the market.

They can show average and median sale prices, price adjustments, local minimum and maximum sale prices, days on the market, individual closed sales, homes that were listed but did not sell, the best time to sell, the impact of overpricing, etc.

Related: How reliable are online home value estimators?

In most cases – 74 percent in 2017 according to the National Association of Realtors (NAR) – owners contacted just one broker before listing their property. That may not be wise. As with any big-ticket purchase or service (like a mortgage), it pays to shop and compare the services of several pros. And commissions are negotiable.

BPOs and appraisals

In the course of helping clients to buy and sell homes, brokers will routinely suggest possible values with a CMA. In addition, a broker might be asked by a lender or other party to value a property with a Broker Price Opinion or BPO.

A BPO is not an appraisal. Only licensed appraisers may prepare an appraisal, an independent estimate of value. In some jurisdictions, brokers may be prohibited from offering BPOs or charging for them.

Related: My home appraised for less than its purchase price. What now?

A CMA is also not an appraisal. Maryland, for example, requires a CMA disclosure statement. “This analysis,” says the disclosure, “is not an appraisal. It is intended only for the purpose of assisting buyers or sellers or prospective buyers or sellers in deciding the listing, offering, or sale price of the real property.”

Understand that some less-reputable agents may present a CMA with a higher price in order to get the seller’s business. The idea being that after they get the listing and a couple of weeks go by, they can talk the seller into something more realistic. Do not automatically go with the agent who says your property is worth the most.

Goals of the best real estate agent

There are several goals which reputable brokers try to meet with a listing price.

They want the home to sell quickly. A property that languishes on the market tends to lose value. And no one earns a commission on a home that does not sell.

They don’t want to underprice the property. That would hurt the seller’s interests.

Related: How much do real estate agents make from my home purchase? And who pays?

Brokers don’t want to overprice the property, because that will drive away potential buyers and cause the property to stagnate. Sometimes owners want a higher value because they see the list price as a reflection of their importance. As a result, setting a sales price involves an understanding of more than bricks and mortar.

Homes reflect who we are, and have much to do with ego, status, pride, image and a lot of subjective qualities. For such reasons, the seller may want a certain price for the property. It’s not that the property is worth the seller’s value, but that a neighbor or competitor got that price.

Comparing your home to neighboring properties

When valuing a property, a broker will make pricing adjustments. As an example, you may have a 2,100 sq. ft. property but one comparable property may have 2,300 sq. ft. You may have 2.5 bathrooms, while a “comp” has three. Etc.

Related: Discount brokers (Do they really provide 1 percent rebates to buyers?)

There are variations which are not pricing adjustments in the sense of square footage or features. An experienced local broker knows that sale prices from past transactions are not exact. Sure the place next door “sold” for $400,000, but the seller had to buy some pricey kitchen appliances.

That doesn’t show up in the sale records. Nor does the 2 percent “seller contribution” the owner paid to close the deal. Knowing how sales are really negotiated gives experienced brokers an edge.

Mortgage lenders look at pricing too

The price has to be right not only in the sense of attracting purchasers,  but also as the sale progresses. For instance, lenders will finance a property on the basis of the sale price or the appraised value, whichever is less.

A sale price which is too high can lead to problems. It may require the buyer to come up with more cash or the seller to accept a reduction. Or both.

Related: Big data and real estate (New systems save time and money)

How well do proposed prices work out? NAR figures show that 60 percent of the listings in 2017 sold without a price change, while 22 percent had just one revision.

Sales price

In real estate, it’s understood that all properties are unique. Each one is different. Even homes which seem alike, such as two outwardly-identical townhouses, have distinctions.

For residential real estate, the usual process is to look at nearby homes now on the market or which have recently sold. Looking at comparables seems pretty easy but it is more involved than meets the eye.

Related: Understanding a real estate contract

A property with good landscaping is easier to sell than one without. Appearances count.

Modernized homes are typically more valuable than those in original condition. They may offer lower utility and operating costs.

Brokers want potential buyers to see themselves in the house. Garish colors and strange furnishings don’t help.

Condition is crucial. Homes where the owners have invested in maintenance, paint and upkeep are easier to sell. And price.

Getting a better price

Sellers and listing brokers want the highest prices and best terms for the property. Toward that end, it helps if the property is in “show” condition – clean, repaired, painted, etc.

Related: How to fire your real estate agent

In addition, to create a sense of more space, it makes sense to get rid of items that you don’t intend to move. This can be done with donations, yard sales, and special trash pick-ups.

Listing price and the Airbnb factor

Residential real estate – homes – are the places where we live. But what if homes also generated income?

Related: Buying a home to rent on Airbnb

We have always had a guest house, basement and attic rentals, but now we also have short-term rentals with services like Airbnb. If you now offer short-term rentals, you need to speak with brokers to see how such income is figured into a CMA – if it is figured at all.

Right now, the subject of short-term rental income and how it should be counted depends very much on where you live and what local rules allow.

Verify your new rate (Feb 16th, 2019)