RATIOS
MARKET RATIOS
The modern way to Price any home
in today’s dynamic marketplace
Some Basic Facts:
The Competitive Market Analysis (CMA) is only part of the story in telling you the value of your home; it doesn’t consider market conditions in your area, price range and the style of your home. We have all seen the home down the street that sells for $50,000 more than any other home on the street, even when all the homes are very similar. One home sells for $450,000 and all the other homes sell for around $400,000. Some of the homes that sell for $400,000 have a better kitchen and baths and are a little larger. Why did this happen?
Market conditions in specific areas, price ranges and home styles can make all the difference: if it is a Buyers Market, a Sellers Market of a Balanced Market. The kind of market you are in will affect the price you get when you sell. You need to know the market RATIOS for your home based on price range, neighborhood and home style.
According to a renowned real estate consultant who established this method of pricing, 97% of all the homes listed in the MLS are incorrectly priced. She also says that many homes are priced TOO LOW for market conditions based on Market RATIOS. She has over 20 years experience as an agent, managing broker and now as a consultant and an instructor who teaches this pricing method to major real estate companies, investors, builders and a few agents.
Market Conditions:
Buyers Market (advantage to the Buyer) - The market has more homes in your neighborhood, price range and home style than buyers. Homes will take longer to sell; they sell at a lower price and with less favorable terms for the seller.
Sellers Market (advantage to the Seller) – The market has fewer homes in your neighborhood, price range and home style than buyers. The homes will sell for more money; sell faster and at better terms for the seller.
Balanced Market – There is no advantage to either the buyer or the seller.
Sellers need to know what market they are in and which direction the market is moving. The CMA doesn’t tell you that information.
FOR EXAMPLE: We all know if there are 2 buyers and 10 homes in a given market ; same neighborhood, same home style and same price range the buyer’s have an advantage and the homes will sell for less and take longer to sell, a BUYERS MARKET. This is based on SUPPLY and DEMAND. Conversely, if the situation is the opposite; there are 10 buyers and 2 homes, the sellers can ask more for their homes, get better terms and their homes will sell faster, a SELLERS MARKET.
Using Market Ratios with the CMA provides for a more accurate estimate of the market value of the property. The CMA is designed to give the seller an estimate of the market value based on recent sales, sales subject to inspection, pending sales and the active properties for sale. For the CMA to be accurate it must use comparable properties; properties in the same neighborhood, price range, size, age, amenities and home style. The CMA gives us a range; high, low and average price. It doesn’t tell us the Market Ratios that are so important in deciding where to price the property. In a sellers market the property market value could be 15% to 20% higher for the seller. On a $400,000 home that is $60,000 to $80,000. The high end, $80,000 is rare, but in a 100% Sellers Market it happens all the time. So the Ratio is all important. Is it 40%, 60% or 80% Sellers Market?
Many sellers don’t understand this and price their properties too low, losing thousands of dollars when they sell.
AS A SELLER I WANT TO KNOW: “How many Buyers are in the market for my home (neighborhood, style and price range) and how many like homes are available?” “Can I ask for more money and still sell quickly?” That is what RATIOS tell us; 80% Ratio a lot of Buyer’s and few homes, 40% Ratio few Buyer’s and a lot of homes.
Can it be a Sellers Market in one area, price range and home style and a Buyers Market in a different area, price range and home style? YES.
Does the traditional CMA tell me the Market RATIOS? No. Do most agents know about and use Market RATIOS to help establish market price? No. Is the method proven and does it provide better information. In most cases it is critical in knowing how high to price a home and how fast the home will sell.
How is it done? The agent must track weekly, all the data on new listings, pending sales, and the absorption rate. This must be done for each neighborhood, price range and home style. This is easy now with the MLS database, MLS history of sales, pending sales and listings and basic PC tools, like Excel and Access.
Does using RATIOS replace the traditional CMA? No, you need them both. The CMA tells you what happened and the RATIOS tell you why and what market you are in and where that market is going.
Do you use this method when helping a seller establish selling price? YES.
Are you the only agent in this area to use Market RATIOS? I'm not sure, you should ask agents you work with that question.
For more information on this method and how it can help you – CONTACT ME.
