Why an appraisal should be part of every agent’s pricing strategy

Agents, how’s your listing presentation?

It’s important for real estate agents to go into their listing presentations with a good idea of how they will price theirAppraisal Pricing Strategy client’s home. I’ve heard that one of the top reasons, if not the #1 reason, for a home not selling is because it’s priced too high.

By encouraging your sellers to get an appraisal as part of your listing presentation you’ll avoid the negative consequences of a bad pricing strategy.

Several things can happen if a home is priced too high. If a home is not priced to the market it probably will not get any showings. The excitement a seller has for having their home listed for sale will turn to frustration if buyers don’t want to look at it, and a lack of showings will definitely hinder a house from being sold.

Any offers that the seller does get may be considered low ball because they will most likely be well below the asking price. If this continues to happen the seller may start questioning your ability as an agent. You have to see the situation from the seller’s perspective, and all they will see is that they’re not getting many offers, and the offers they do get are low.

Buyers may start to get a negative perception of the home. They may get the idea that it is priced too high or that something is wrong with it. Other agents, who may be working for buyers, may steer them clear of the home until the price is dropped. This may result in the home being on the market for an extended period of time. When the price is dropped you may get offers but they may be lower than normal since they see the seller as desperate.

If you are able to get an offer on the home you still have to get past the mortgage appraisal. Just because a buyer is willing to pay you a certain price this does not mean that is really what the home is worth. What if the buyer is not familiar with the area or what if they like the home so much that they are willing to overpay for it? I have seen these situations many times in my 25+ year career as an appraiser.

The sad thing is that most people feel that if the seller is willing to sell their home for a certain price, and the buyer is willing to pay that price then there won’t be a problem. If the buyers were paying cash it would be ok, but most buyers have to get financing.

When a buyer wants to borrow money to buy a house, the bank will get an appraisal. The appraisal will be completed to make sure that the house is actually worth the money that the bank is loaning. If it is not, then the deal will fall through or it will need to be renegotiated down to the appraisal value.

Appraisals reflect market value

These types of situations can be avoided by pricing the home to the market. By that, I mean that the list price will need to be based on what other similar homes have recently sold for as well as what other homes are actively listed at. If this is done correctly the home should sell within a reasonable amount of time, and for market value.

If the comps used were the most recent and similar available then when the mortgage appraisal is performed the appraiser will most likely use the same or similar comps, and the value they arrive at will be very close to the contract price and the likelihood of the deal falling through is diminished.

While many agents may be able to accurately price a home there may be newer agents or others that may not be familiar with the market. In situations like this including an appraisal as part of your pricing strategy can add more credibility to your listing presentation because it provides a clear course of action to price the home to get it sold.

Many agents may not feel the price of an appraisal is worth it, but when you consider how much additional money you spend in marketing the home when it is overpriced the cost of the appraisal is a no brainer. Most of the agents that I do pre-listing appraisals for don’t even pay for the report themselves because after they explain the value of the appraisal to the seller they pay for it.

Pre-listing appraisal and pricing strategy

A pre-listing appraisal provides numerous advantages over a traditional CMA. By suggesting a pre-listing appraisal to sellers as part of the listing presentation you promote the following positive factors

  1. The pre-listing appraisal will provide accurate square footage. Have you ever considered the effect that incorrect square footage can have on a list price? If the homes square footage is off by 100 square feet, and homes are selling for $100 per square foot, the list price can be off by as much as $10,000. Does the cost of an appraisal make more sense now?
  2. As I noted previously, by getting a pre-listing appraisal the likelihood of the deal falling through decreases dramatically. The comps used in the pre-listing appraisal will very likely be the same ones as the appraiser doing the mortgage appraisal will use. Because of this, the value should be similar, making the transaction smoother and quicker.
  3. An appraisal by a third party unbiased person can provide support for an agents list price. Have you ever arrived at a list price only to be shut down by the owner who thinks their home is worth a whole lot more? A pre-listing appraisal that is similar to the list price you arrived at can provide support and add credibility to your value and even take the monkey off of your back. The seller will discover that if they want to sell in a reasonable amount of time, and for market value, they will need to lower their unreasonable expectations.
  4. A pre-listing appraisal will make the listing more competitive with other homes currently for sale. Rather than passing your listing up because it is priced more than all the other homes it will get more showings because more buyers will see that the asking price is reasonable.
  5. A pre-listing appraisal can clear up confusion with price per square foot inaccuracies. The price per square foot metric can be useful in some situations but most of the time it is not a good figure to use to help estimate a list price.
    If the home is in a cookie cutter style neighborhood where all of the homes are very similar, such as a one level garden home built on a slab, then knowing the price per square foot can be helpful. Because the houses are very similar in square footage the price per square foot range will be narrow and more accurate.
    What happens more often is that a couple of sales are looked at to get their price per square foot, not paying attention to the physical difference between the subject and sales, and then apply that figure to the subjects square footage. This flawed process usually leads to mediocre results and an inaccurate list price.

By informing sellers of the benefits of a pre-listing appraisal during your listing presentation you communicate to them that you are serious about getting their home sold for the best price in the shortest amount of time.

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Question

Does it make sense to you that suggesting an appraisal in your listing presentation as part of your pricing strategy will show your sellers that you are serious about getting their home sold? If you have anything you would like to add, or have a question, leave a comment below and we’ll keep the conversation going. As always, thanks for reading.

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Comments

  1. Brenda Kirby says:

    How much do you charge for a pre-listing appraisal?

    • Hey Brenda. The cost of an appraisal is based on many different factors. If you would like to email or call me to discuss I would be more than happy to talk with you.

  2. Thank you Tom for your article. You can stage a house, market a house, and these things can help, but in the end it all comes down to price.

    • Thank’s Gary. I agree, I have seen homes that had everything done to them to help them sell but they didn’t because the price was way out of line.

      • True. If it’s not priced right, it just won’t sell. There was a national headline that recently said my market is going to be one of the hottest in the nation next year. Now we’re going to see sellers want to price even higher.

        • Ryan, in markets like you are in, that are either going up or down faster than normal, it is very important for agents to have a solid pricing strategy to pitch to potential clients. If you price a home high because of the anticipated “market hotness” as you put it, but the values just are not there yet then a home is just going to sit on the market and not sell and that is not cool. If an agent is unsure about what price to list a home at then including a pre-listing appraisal in their listing presentation can help them do a better job for their clients.

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