Factor the Market Trend into Pricing

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• Factor the Market Trend into Pricing
• (for real!)

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Your House as seen by
Yourself
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Your House as seen by
Your Buyer
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Your House as seen by
Your Lender
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Your House as seen by
Your Appraiser
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Your House as seen by
AndYour Countys Tax Assessor
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Agenda

• Price to meet the market not chase it
• True Market Value
• Reading the Trends
• Exercise Price to the Future
• The Weichert approach to pricing
• What the buyers market taught us
• Introduction to the Enhanced PTA Calculator

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There is a gap between what sellers think and
the realistic price they can get. That gap is
where your skills must work.Jim Weichert, 2008
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Price to Meet the Market Not Chase It
Your Listing
Your Listing
Market
Market
Market
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Show of Hands . . .

• Who here has had a seller who wanted to list
  their house for 30 higher than what you know
  they can get for the house?
• Who here has lost a listing to the competition
  who took it for an unrealistically high price?

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Whats in the Sellers Mind?

• Think carefully . . .
• On WHAT did the sellers base their price?

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Factor the Market Trend into Pricing

• Seeking the True Market Value
• Statistics, Trends Forecasts

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True Market Value

• True market value the price paid
• by a ready, willing and able buyer not forced to
  buy,
• to a ready, willing and able seller not forced to
  sell,
• in an arms length transaction,
• after sufficient exposure to the market.

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Pricing to Reach the True Market Value
Buyers
Multiple Offers
Offer within 30 Days
High Activity
Well Priced Listing Maximum Activity
Well Priced Early Offer
High Price Low Ball Offers
Low Activity
Highly Priced Listing Weak Activity/ No Offers
Unrealistically Highly Priced
Almost No Activity
Time DOM
30
0
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Elements of the Real Estate Trend

1. Absorption Rate
2. Variation (Appreciation/Depreciation)
3. Sales Price to Listing Price Ratio
4. Temperature of the Market

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1. Absorption Rate
SUPPLY
TOTAL ACTIVES
ABSORPTION RATE

UNDER CONTRACT PAST 30 DAYS
DEMAND
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Absorption Rate
SUPPLY
DEMAND
ABSORPTION RATE

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Market Absorption
Monday, Feb 9, 2010 MLSACTIVE LISTINGS LISTED IN LAST 30 DAYS UC LAST 30 DAYS ABSORPTION RATE (MONTHS)
Town A 75 17 9 8.3
Town B 88 11 7 12.6
Town C 116 22 11 10.5
Town D 16 3 0  
Town E 6 2 1 6.0
Composite 301 55 28 10.8
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Market Appreciation/Depreciation
High Supply/Low Demand
Low Supply/High Demand
Normal
Weichert has been studying market conditions for
more than 3 decades and has found a direct
correlation between market absorption and
property values. As absorption rates increase
beyond a normal market level of 5-6 months,
property values depreciate annually. Note This
Market Scale is valid only for absorption rates
between 1 and 12 months.
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2. The Math Behind the Chart
New Price Old Price
Variation

Old Price
Variation gt 0 APPRECIATION
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The Math Behind the Chart
Price
New Price
550,000
APPRECIATION
500,000
Old Price
Time Month
T
0
550,000 500,000
50,000

0.1

10
gt
0


VARIATION
500,000
500,000
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2. The Math Behind the Chart
New Price Old Price
Variation

Old Price
Variation gt 0 DEPRECIATION
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The Math Behind the Chart
Price
Old Price
500,000
DEPRECIATION
New Price
450,000
Time Month
T
0
450,000 500,000
- 50,000

- 0.1

- 10
lt
0


VARIATION
500,000
500,000
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Correlation between Absorption and
Appreciation/Depreciation
High Supply/Low Demand
Low Supply/High Demand
Normal
Weichert has been studying market conditions for
more than 3 decades and has found a direct
correlation between market absorption and
property values. As absorption rates increase
beyond a normal market level of 5-6 months,
property values depreciate annually. Note This
Market Scale is valid only for absorption rates
between 1 and 12 months.
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The Caveat
Note Because absorption rates vary throughout
the year, look at average absorption rates or
trends over the last six months.
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3. Sold Price/List Price Ratio
Monday, February 9, 2010 CLOSED LAST 30 DAYS AVERAGE LIST PRICE AVG. DOM TO UC AVERAGE SOLD PRICE SOLD VS. LISTED
Town A 2 294,500 163 272,500 93
Town B 1 345,000 183 327,000 95
Town C 3 325,966 21 306,333 94
Town D 1 399,900 304 352,000 88
Town E 2 339,450 30 309,000 91
Composite 9 332,300 140 306,778 92
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4. Temperature of the Market

• What would give you more of an indication of the
  temperature of the market . . . . ?
• When a listing Closed?
• OR
• When a listing went Under Contract?

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Market Overview Temperature
Monday, February 9, 2010 MLSACTIVE LISTINGS AVERAGE ACTIVE PRICE LISTED IN LAST 30 DAYS PRICE IMPR. LAST 30 DAYS IMPROV. RATE UC LAST 30 DAYS AVERAGE UC PRICE PENDINGS VS. ACTIVES ABSORPTION RATE (MONTHS) CLOSEDLAST 30 DAYS AVERAGE LISTED PRICE AVERAGE SOLD PRICE SOLD VS. LISTED SOLD VS. ACTIVES
Town A 75 387,658 17 9 12.0 9 396,322 102 8.3 2 294,500 272,500 93 70
Town B 88 270,776 11 5 5.7 7 179,557 66 12.6 1 345,000 327,000 95 121
Town C 116 384,498 22 11 9.5 11 314,054 82 10.5 3 325,966 306,333 94 80
Town D 16 417,299 3 0 0.0 0       1 399,900 352,000 88 84
Town E 6 489,149 2 0 0.0 1 420,000 86 6.0 2 339,450 309,000 91 63
Composite 301 355,867 55 25 8.3 28 310,657 87 10.8 9 332,300 306,778 92 86
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Exercise Price to the Future

• Most Recent Under Contract Comparable
• 519,000
• Under Contract Date 15 Days Ago
• Days-on-Market to Contract 120 days
• Sale Price to List Price Ratio 93
• Absorption Rate 9 month

• WHAT SHOULD THE LIST PRICE BE ?

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1. Determine the Expected Sales Price for the
Under Contract Comp

• Sales Price to List Price Ratio 93
• List Price for Under Contract Comp
• 519,000

• Expected Sales Price
• 519,000 x 0.93 482,670

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2. Determine the Effect of Absorption on Market
Value

• Absorption Rate 9 month
• Annual Depreciation
• - 15 to 20
• Monthly Depreciation
• - 1.25 to - 1.67
• Averaged Monthly Depreciation
• - 1.5

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3. Effect of DOM on Price

• 120 Days On Market 4 Month
• - 1.5 Monthly Depreciation x 4 Month - 6
  Depreciation
• Factor 100 - 6 94

• DOM Depreciated Price
• 482,670 x 94 453,710

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4. Effect of UCD on Price

• Under Contract Date 15 Days Ago 0.5 Month
• - 1.5 Monthly Depreciation x 0.5 Month -
  0.75 Depreciation
• Factor 100 - 0.75 99.25

• UCD Depreciated Price
• 453,710 x 99.25 450,307

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Price to the Future

• Waiting doesnt work in sellers favor.
• Overpricing doesnt work in sellers favor.
• Price today for the price of tomorrow.
• Be the more attractive price on the market.
• Induce competing offers.
• Good properties, attractively priced still sell
• over the asking price.
• Sell within 30 days for more than you could
  expect
• in 120 days.
• Save 3 to 4 month of mortgage payments.
• Protect yourself from the incertitude of listing
  in a depreciating market.
• PRICE TO MEET THE MARKET INSTEAD OF CHASING THE
  MARKET!

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Factor the Market Trend into Pricing

• Enhanced PTA Calculator
• How It Works

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Current PTA vs. Enhanced PTA

• Current PTA
• The trend is determined by analyzing comps
• Sold 12 months ago
• Sold 6 month ago
• Pending sales in the past 30 days
• Active listings
• The Absorption Rate is calculated but not
  incorporated in the trend
• DOM are calculated, but not incorporated in the
  trend
• Temperature of the Market is important, but not
  essential

• Enhanced PTA
• Uses absorption rate to determine market
  appreciation/depreciation (long term trend)
• Uses comparable sold listings to establish the
  sales price to listing price ratio.
• Applies the variation to the most recently under
  contract pending listings.
• Eliminates the current active comps
• Temperature of the market is essential

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Math Behind the Enhanced PTA Calculator
Price
12 Month Sold Price
6 Month Sold Price
30 Days Pending List Price
PTA1
Pending Expected Sales Price
PTA2
Time Months
0
12
11
6
13
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Price to Meet the Market Not to Chase It
Your Listing
Your Listing
Market
Market
Market
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How the Enhanced Calculator Works
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Enhanced PTA Calculator Calculation 1
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Enhanced PTA Calculator Calculation 1
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Enhanced PTA Calculator Calculation 2
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Enhanced PTA Calculator Calculation 2
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Enhanced PTA Calculator Calculation 2
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Enhanced PTA Calculator Calculation 2

• Note
• Mark with an asterisk any address of a listing on
  which an adjustment was applied (i.e. extra
  rooms, extra bathrooms, extra square footage,
  etc.)

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Enhanced PTA Calculator Price Guide
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Enhanced PTA Calculator Price Guide
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Enhanced PTA Calculator Price Guide

• Note
• THIS PRICE GUIDE IS NOT TO BE SHOWN TO THE
  SELLER. YOU HAVE TO LEARN, UNDERSTAND AND BE ABLE
  TO EXPLAIN THE RATIONALE BEHIND THE "NEW PTA
  CALCULATOR" TO THE SELLER.

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Enhanced PTA Calculator Price Guide
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Enhanced PTA Calculator Price Guide
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Enhanced PTA Calculator Print Page
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Enhanced PTA Calculator Print Page

• Note
• This is compatible with MS Excel 2003 to 2007.
• If you need help using Excel, go to Weichert
  University and take the Excel online courses in
  the technology courses section.
• - This may not be compatible with MAC and MS
  Vista.

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Pricing Toolkit

• What to bring

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Assignment for (insert date)

• Hands on practice session using REAL information
  for a listing or price improvement. No listing?
  Get one!
• Download the Enhanced PTA Calculator
• (insert date), please bring
• Laptop, if you have one (with Calculator on it)
• Sold Comps (12 months, 6 months)
• Under Contract in Past 30 Days
• One-Line report of actives

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• Get Stamped!

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The only thing you can do to sell real estate
right now is price it to sell.
Jim Weichert November 14, 2008