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If you've been approached by an agent wanting to do a CMA for you, you might consider turning tail and running the other way! A CMA alone is the old-school way that average agents use to attempt to come up with a price for your home. Don't buy it. Using a CMA to price your home is like driving down the freeway using your rearview mirror. It take nothing into consideration regarding market absorption nor does it have a predictive element.
CMAs are more art than science and can be terribly misleading if not done correctly. Remember, most real estate agents are taught just an hour or so of appraisal as a requirement to get their license. Even licensed real estate appraisers can fudge as much as 10-15% on the value of a home and still come up with a price that is "defendable."
Don't be fooled by an agent trying to "buy" you listing by telling you your home is worth more than the market will bear. Mis-pricing your home will cost you tens of thousands of dollars in the long run and delay or even prevent it's sale.
The graphs to the right help explain the 3 most important laws about pricing your home correctly. To begin with, the clock starts running the day your property hits the market, as shown in the first graph, Activity versus Timing. The majority of interest and activity happens during the first two weeks the property is on the MLS. After two weeks, interest wanes and agents are less likely to even include the property on the list of possibilities. This is due to a term called "shopworn," which literally means tarnished, frayed, faded, or otherwise defective from being on display in a store.
The second graph, Effects of Overpricing, shows the real value you lose over time when the property is miss-priced. Even in as little as four weeks, the value the property will sell for drops nearly 2%. After 4 weeks and up to three months, the damage is 3.6%. From 13 weeks to 24 weeks on the market, the loss is 5.6% and after 24 weeks you can expect to get 9.1% or less for your home than you would have received if the property had been priced correctly to begin with.
The third and final graph, Percentage of Buyers by Asking Price, shows how the universe of potential buyers shrinks as the the asking price exceeds market value. At an asking price 15% over market value we reach only 10% of the porential buyers. At 10% over market value the share of the buyer universe is just 30%. At market value we reach 60% of possible buyers. When the asking price is 10% below market value we find 75% of possible buyers. It's not until the asking price is dropped 15% below market value that we reach 90% of eligible buyers.
The bottom line is that pricing the property correctly from the outset is absolutely critical to maximize the financial outcome for the seller. It is also important not to put the home on the market until you are no more than 60-90 days away from needing to move. While some sellers believe that they can market the property at a high price long before the need to move in hopes that an uneducated buyer might come along, this decision usually leads to a lower net sale and additional problems when the time comes when the sellers must sell.
One final point - there is a saying in the business that "You pay for price reductions at least twice." This is normally the case when sellers are chasing the market. Buyers will smell blood and sit on the sidelines until the desperate seller drops the price well below market value. Don't let this happen to you!
Many homeowners are taken in by the convenience and speed of seeking their home's value on the Internet. There are plenty of web sites offering to fill that need. Problems arise because none of these free web sites have access to the "sold" data which they absolutely must have to make an accurate value determination. Texas, among other states, has a non-disclosure law that keeps sales prices private. Only Realtors have access to "sold" data through membership in their local Multiple Listing Service.
A recent test of the free AVMs on my own home showed that valuations are all over the place. Here are the results, all taken on the same day - September 9, 2013:
That's a range from $376,098 to $509,809, or a whopping 36% difference!
Our brokerage has retained the services of a World-Class research firm out of Ft. Collins Colorado which pulls raw data and comparable sales directly from our Multiple Listing Service. The data is then processed using regression analysis algorithms and predictive modeling to determine not only what your home is worth today, but expertly guides you how to price and position your home in the market to sell within the next 90 days!
Where does the data come from and how are Trulia Estimates calculated?
Trulia Estimates are based on the physical characteristics of homes like bedrooms, square footage and other features as well as recent sales information for homes in that area. This data is compiled from public records and other sources for counties across the US. Our estimates also incorporate updates from homeowners who claim their homes and enhance the profiles for those homes on Trulia.
Why are Trulia Estimates more accurate in some areas than others?
The amount of data available from public records and other sources varies by county. Accuracy tends to degrade in areas where we have limited data about recent sales of similar homes or basic information about the features of the homes in those areas.
Why are Trulia Estimates not available in all locations?
There are many areas across the country where home facts and recent sales data are limited or not available at all. For example, there are certain “non-disclosure” states, like Texas, that do not disclose sale prices for homes in public records.