One of my early training sessions from 2007, but the principles are timeless. Discusses: different perspectives of value; how appraisers define market value; economic definition of value; how homes that sit on the market too long are undeniable proof that the home was overpriced; importance of seeing value through a buyer's perspective; scripts to convince home sellers to price their property correctly.

1. Effective Pricing
By: Aaron Lewis
February 27, 2007

2. Quote Of The Week
“Technology won’t replace
agents…
Agents with technology
will replace agents.”

3. How to Price a Home
 Price the home to sell
 In order for the home to sell, the
following three people must all agree on
the price:
1. Agent
2. BUYER
3. Appraiser (bank)
So how do these people each define value?

4. Appraiser’s Definition of
“Market Value”
The most probable price that a property should bring in a competitive and open market under all
conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably,
and assuming the price is not affected by undue stimulus. Implicit in this definition is the
consummation of a sale as of a specified date and the passing of title from seller to buyer under
conditions whereby:
1. buyer and seller are typically motivated;
2. both parties are well informed or well advised, and acting in what they consider their best
interests;
3. a reasonable time is allowed for exposure in the open market;
4. payment is made in terms of cash in United States dollars or in terms of financial arrangements
comparable thereto; and
5. the price represents the normal consideration for the property sold unaffected by special or
creative financing or sales concessions granted by anyone associated with the sale.
--Uniform Standards of Professional Appraisal Practice (Washington D.C., Appraisal Foundation
1997), p. 155
How do appraisers arrive at market value? They get comps
and make adjustments based on the differences.

5. Economic Definition of “Value”
The price that a knowledgeable buyer is
(1) willing
and
(2) able
to pay for a product or service.

6. Value Is A Fluid Concept
 Value is changing all the time
 Willing
– Negative media coverage and consumer
sentiment has caused buyers to be less willing
to pay a price supported by past comps.
 Able
– When interest rates go up, even people who
are willing are no longer able to afford the
same amount of home for the same payment.

7. Value Is A Fluid Concept
 If “value” is defined as the price someone
IS willing and able to pay, what can we
say about properties that haven’t sold
after 45-60 days on the market?
PRICE WAS TOO HIGH!!

8. How To Price A Home
 Traditional Way to Price
– What are the flaws in this method?
– How do we overcome these flaws?
 Agent, Buyer, & Appraiser have to agree
on the price, right?
 How does the buyer decide which house
to buy, and what price he/she will pay for
that house?

9. How To Price A Home
 To price a home to sell, you need to look
at the home through a buyer’s eyes.
– What source provides basis for lower price?
Sold comps or actives?
– Pick whichever is lower, then start making
adjustments
– Put seller in buyer’s situation—which home
would you buy?
(BTW, this is what to do with a buyer, too)

10. How To Price A Home
And how are buyers shopping for
homes right now?
Are they shopping by location,
or by “deal?”

11. How To Price A Home
In order to sell your listing, the home needs
to be the best overall value for the money.
Until the home IS the best overall buy for
the money, it will always lose out to the
one that is.

12. How To Convince Sellers
 “Mr/Mrs Seller, is this an optional sale for you, or
are you moving for sure? In other words, are
you going to sell only if the price is convenient
for you, or have you decided that you will be
selling your home at market value, whatever
that may be?”
 “Value is…”
 “You have to be the best overall value for the
buyer, because if you’re not, you’ll always lose
out to the one who is.”
 (In other words, go over everything we are
talking about today)

13. How To Convince Sellers
 If we try a price and don’t have it under
contract within 30-45 days, then we’ll
know (by definition) that your price is
more than the market value for your
home. At that point your choice will be to
adjust to the market, or just not sell it.
The market is efficient. It will tell you
what your home is worth, and it will also
tell you what it is not worth.

14. How To Convince Sellers
 “I would rather have you come to grips
with reality and hate me now (but be
happy with me later), than to mislead and
flatter you into signing a contract now,
and then being unsuccessful and having
you resent me later.”
 Let’s just get the pain out of the way now,
OK? You’ll thank me later, I promise.

15. Remember…
 You need to check more than just MLS
sold data. You’ll also need to check:
– Tax records (Realist)
– New home subdivisions (if applicable)
– And most importantly: ACTIVE LISTINGS

16. Variable Pricing
 Always consider it, at least
 Explain the pros & cons
 If it’s a good fit, suggest starting with a
variable (can switch to a fixed price later)
 Remember the rules of variable pricing
though..

17. Examples
 10312 St. Andrews Dr, Oakdale
 1276 Casual Lane, Turlock
 3600 Lauding Way, Modesto

18. Conclusion
“If the seller is motivated, show it in the
price, not the comments.”
–Mary Prieto