Pricing A Listing With No Comps

March 22, 2010

Residential

Pricing a Home when only Distressed Homes are Selling

Pricing a Home when only Distressed Homes are Selling

I recently came across a client that I met through social networking. She told me about a property that she has that was on the market a few times over the past few years at $500k but never sold. I checked it out on the MLS and found that, in addition to a few basic marketing mistakes by her previous agent the house was priced very high for the neighborhood. She asked me to do a CMA and tell her what I thought the house would sell for and in return, she would give me the listing.

Road Block Number One

After visiting the house to do a proper assessment of the product I found it to be in excellent, move-in ready condition. I conducted some market research using the tools of the MLS and hit my first road block, no comparable properties on the market, and no comparable properties sold in the past six months. At that point I did a search of ALL closed detached single family homes and tried to price it out using dollars per square foot. Unfortunately the only detached single family homes that had sold in that neighborhood in the past six months were distressed properties selling well below the market value of what they would have sold for if they were move-in ready. Using those numbers the unit in question priced out at $280k. After speaking with my client prior to the CMA I knew this would never fly. Even though she had never lived in this property I could tell there was a bit of sentimental attachment and sentimental over-valuing going on in her mind.

Road Block Number Two

As I have a somewhat comfortable relationship with this client I was honest with my lack of findings and told her I needed to do more research before I could recommend a price with confidence. She suggested that I put the house on the market for $500k and “give it a try.” Knowing what I know about this property and how it didn’t sell at that number even when people were paying too much for houses, I knew I would be lucky to get a showing at that price let alone an offer or a closing. I was not willing to put the time and money into something that would not result in a sale. When I told her I didn’t think it was worth that much she told me “I’m the owner and I should get to decide what it sells for.”

Road Block Number Three

Let’s say we did give it a try at $500k and by some miracle we got an offer at $475k which we accepted. The buyer’s bank would send an appraiser out to the property and the appraiser would come across similar challenges appraising the property. If they could not find any reason to justify a sales price of $475k the buyer would never get the loan and we’d be back to the drawing board after months of wasted time.

Given these challenges and others not worth mentioning, some of my colleagues told me to pass on the listing. Some told me to tell her that if she wanted to list at that price, she’d have to pay all of the marketing expenses up front before I’d take the listing. First off I never shy away from a challenge so passing on the listing was not an option at this point. Knowing that asking for marketing expenses up front would have turned her cold, I racked my brain to find a graceful solution to this challenge. How can I keep this listing and convince my client to be realistic about the value of her home without butting heads with her thereby weakening the positive rapport I’ve build up thus far?

The Exciting Conclusion

What I suggested to her was this: Have a bank appraiser come out to the house and assess the value before listing the property. I told her that if she agreed to list the house at or around the value determined by the appraiser, I would reimburse her the cost of the appraisal when the house sells. This way it takes the pressure off me to be correct about the value of the house given no comps, and it gives us a glimpse into what a bank would be willing to lend on this property. Also if my client thinks the number is too low, it will take the “blame” off me and put it on this third party allowing me to maintain the rapport that I have established. If she decides not to sell at that point it will be her decision and not mine allowing me to avoid telling her “it’s not worth my time at the price you want to list at.”

There is always a way around a challenge if you allow yourself to think outside the box. I know there are others out there who have been in this situation so I hope this helps. Happy selling!

We would like to thank llgda for kindly sharing today?s photo via the Creative Commons License.
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About Randy Whiting

Randy Whiting is a respected Chicago real estate agent at Lucid Realty a full-service brokerage that offers discounted commissions to sellers and rebates to buyers. With plenty of experience on both sides of the transaction and all type of sales be they conventional, FHA, short sale, or foreclosure; Randy has an experience-driven comfort level that usually rubs off on his clients. In addition, his experience working with developers allows him to provide an in-depth understanding of new development and gut-rehab properties as well as re-sales. Outside of his work as a realtor, Randy spends his time writing and performing music and enjoying the outdoors as often as possible. You can contact him at RWhiting@LucidRealty.com

View all posts by Randy Whiting

9 Responses to “Pricing A Listing With No Comps”

  1. Chris Says:

    I’m not sure this is “thinking outside of the box,” though if it makes you feel better about asserting yourself against your client, then so be it.

  2. Randy Whiting Says:

    Chris thank you for joining the conversation. As this is forum is meant to be a platform for discussion, I’d love to hear back from you about how you would have handled this situation. Anyone can fire off an anonymous comment to jeer someone, but I challenge you to step up and actually contribute something here. I’m always looking to learn from others.

  3. Ben Goheen Says:

    While Chris has a point where it’s not radically different, I think it will set you apart from the crowd. You let the appraiser be the ‘bad guy’ then covering their $350 fee once it sells. I’d let the homeowner choose the appraiser, you don’t want to give the impression of having a preferred partner skew the numbers.

  4. Stephanie Sullivan Says:

    Cool! Great idea to have a bank appraise the property first…. nice.

  5. Debby Teuchert Says:

    Great solution to a very common problem in this market!

  6. Beverly Bahm Says:

    Randy, your suggestion to the seller was very respectful and at the same time you accomplish your goal of not taking an overpriced listing….

  7. Randy Whiting Says:

    Just wanted to say thanks to all who read and wrote me both online and here at TheChicago77.

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