March 2015 | By Sammer Mudawar
Valuation is one of the most difficult skills to master as a real estate professional. Even if there’s a matching home next door, each property has its own set of distinct characteristics that should be considered in the equation.
In the real estate industry, we spend hours upon hours evaluating properties, and consumers spend hundreds of millions of dollars each year on appraisals. But when it comes to setting a home’s asking price, it’s easy for logic, reason, and facts to fly out the window. Sellers often believe their home is worth more than a practitioner’s valuation. This can mostly be attributed to emotional factors that cloud a seller’s ability to evaluate objectively. Considering the emotional stakes, it’s imperative that sales agents know how to come to an amicable agreement with clients on price. Teach your agents how to overcome these three common seller hurdles.
1. Sellers Leery of Agents’ Intentions: The seller doesn’t trust your agent yet and believes he or she is just trying to win a commission. If clients don’t believe that the agent is hearing them when they talk about the value of their home, then your agent will not get the listing.
Solution: Sellers must believe that your agent has a burning desire to sell their home for top dollar. They must also trust that your salesperson will provide them with objective data and opinions as to the value of their home. Your agent should clearly outline the factors that go into a complete market analysis. This includes demonstrating knowledge, expertise, and the intent of representing the best interest of the client. Agents who aren’t confident in pricing strategy won’t be able to communicate the value of the property to potential buyers or other agents when trying to sell the home.
2. The Zillow Factor: The “Zestimate” is an automated algorithm that gives home owners an instant value on their property. Depending on the recent sales activity in the immediate area and the conformity of the overall homes and topography, Zillow can be accurate to within a few hundred dollars or off by hundreds of thousands of dollars. In areas with conforming tract homes and recent sales, Zillow can be a bit more accurate. But in areas with unique factors, like views, custom homes, redeveloping neighborhoods, or a lack of recent sales, Zillow can have huge discrepancies.
Solution: Many sellers will conduct a Zestimate at some point in their research, so it is prudent for your agents, as well-informed real estate professionals, to know what value estimate Zillow is providing. As long as your agents know what information sellers are seeing, overcoming a potential Zillow influence should not be an issue. One simple method is pointing out what Zillow publishes on its own website about its Zestimates: “The Zestimate home valuation is Zillow’s estimated market value, computed using a proprietary formula. It is not an appraisal. It is a starting point in determining a home’s value. The Zestimate is calculated from public and user submitted data; your real estate agent or appraiser physically inspects the home and takes special features, location, and market conditions into account.”
Zillow goes on to encourage customers to get a CMA from a real estate professional or a professional appraiser. Zillow also provides statistics about accuracy, stating that nationwide, Zestimates are currently within 5 percent of the final sale price 38.4 percent of the time. Point out the fact to your agents that if they were within 5 percent of the actual sales price only 38.4 percent of the time, you’d be out of business.
3. Per-Square-Foot Pricing: Explained simply, per-square-foot pricing is the unsophisticated Zillow. It is a simple math equation applied to a large number of homes to quickly arrive at a home value based purely on size. This valuation method is not an issue if it happens to fall in line with the actual value. However, it’s neither dependable nor a method used by real estate appraisers to arrive at a value.
Solution: Sometimes the value can be correct; other times it will vary greatly from the actual value. This can cause confusion for sellers about their home’s value. Agents should let sellers know that per-square-foot pricing is a great starting point, but they will be need to apply the valuation methods outlined in the sidebar to arrive at a complete, data-supported value.
If your agents can demonstrate value, expertise, and best intentions, it will empower them to deal with these three common seller objections more gracefully, which will help you, as the broker, avoid headaches in the long run.
Reprinted from realtor.org, March 2015, with permission of the NATIONAL ASSOCIATION OF REALTORS®. Copyright March 2015. All rights reserved. http://www.realtor.org/