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TRANSCRIPT
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Factor the Market Trend into Pricing
(for real!)
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Your House as seen by…Your House as seen by…
Yourself
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Your House as seen by…Your House as seen by…
Your Buyer
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Your House as seen by…Your House as seen by…
Your Lender
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Your House as seen by…Your House as seen by…
Your Appraiser
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Your House as seen by…Your House as seen by…
And…Your County’s Tax Assessor
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AgendaAgenda
• 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 buyer’s 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 Price to Meet the Market Not Chase ItChase It
Your Listing
Your Listing
Market
MarketMarket
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Show of Hands . . .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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What’s in the Sellers’ What’s in the Sellers’ Mind?Mind?
Think carefully . . .
On WHAT did the sellers base their price?
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Factor the Market Trend into Factor the Market Trend into PricingPricing
Seeking the True Market Value
Statistics, Trends & Forecasts
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True Market ValueTrue 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 Pricing to Reach the True Market ValueMarket Value
Time
[DOM]
Buyers
30
Well Priced Listing: Maximum Activity
Multiple Offers
Highly Priced Listing: Weak Activity/ No Offers
Offer within 30 Days
High Price: “Low Ball” Offers
High Activity
Low Activity
Almost No Activity
0
Unrealistically Highly Priced
Well Priced Early
Offer
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Elements of the Real Estate Elements of the Real Estate Trend 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 Rate1. Absorption Rate
TOTAL ACTIVES
UNDER CONTRACTPAST 30 DAYS
=ABSORPTIONRATE
SUPPLY
DEMAND
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Absorption RateAbsorption Rate
=ABSORPTION RATE SUPPLY DEMAND
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Market AbsorptionMarket Absorption
Monday, Feb 9, 2010 MLS
ACTIVE 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 Market Appreciation/DepreciationAppreciation/DepreciationHigh Supply/Low Demand Low Supply/High DemandNormal
Mar
ket
Ab
sorp
tion
in M
onth
s 1
2
3
4
5
6
7
8
9
10
11
12
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 2. The Math Behind the ChartChart
New Price – Old Price
Old Price=Variation
Variation > 0 APPRECIATION
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The Math Behind the ChartThe Math Behind the Chart
$550,000 – $500,000
$500,000=VARIATION = 0.1 = 10% > 0
$50,000
$500,000=
$500,000
$550,000
Price [$]
T0Time
[Month]
Old Price
New Price
APPRECIATION
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2. The Math Behind the 2. The Math Behind the ChartChart
New Price – Old Price
Old Price=Variation
Variation > 0 DEPRECIATION
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The Math Behind the ChartThe Math Behind the Chart
$450,000 – $500,000
$500,000=VARIATION = - 0.1 = - 10% < 0
- $50,000
$500,000=
$450,000
$500,000
Price [$]
T0Time
[Month]
Old Price
New Price
DEPRECIATION
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Correlation between Correlation between Absorption and Absorption and
Appreciation/DepreciationAppreciation/DepreciationHigh Supply/Low Demand Low Supply/High DemandNormal
Ma
rke
t A
bso
rpti
on
in M
on
ths 1
2
3
4
5
6
7
8
9
10
11
12
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 CaveatThe 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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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%
3. Sold Price/List Price 3. Sold Price/List Price RatioRatio
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4. “Temperature” of the 4. “Temperature” of the MarketMarket
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 Market Overview TemperatureTemperature
Monday, February 9,
2010
ML
SA
CT
IVE
LIS
TIN
GS
AV
ER
AG
E A
CT
IVE
PR
ICE
LIS
TE
D IN
LA
ST
30 DA
YS
PR
ICE
IMP
R. L
AS
T 30 D
AY
S
IMP
RO
V. R
AT
E
UC
LA
ST
30 DA
YS
AV
ER
AG
E U
C P
RIC
E
PE
ND
ING
S V
S. A
CT
IVE
S
AB
SO
RP
TIO
N R
AT
E
(MO
NT
HS
)
CL
OS
ED
LA
ST
30 DA
YS
AV
ER
AG
E L
IST
ED
PR
ICE
AV
ER
AG
E S
OL
D P
RIC
E
SO
LD
VS
. LIS
TE
D
SO
LD
VS
. AC
TIV
ES
Town A 75 $387,658 17 912.0%
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 Exercise: Price to the FutureFuture
• 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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• 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
1. Determine the Expected 1. Determine the Expected Sales Price for the Under Sales Price for the Under
Contract CompContract Comp
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Absorption Rate = 9 month
Annual Depreciation == - 15% to – 20%
Monthly Depreciation == - 1.25% to - 1.67%
Averaged Monthly Depreciation =
= - 1.5%
2. Determine the Effect of 2. Determine the Effect of Absorption on Market ValueAbsorption on Market Value
Ma
rke
t A
bso
rpti
on
in M
on
ths
1
2
3
4
5
6
7
8
9
10
11
12
Normal
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• 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
3. Effect of DOM on Price3. Effect of DOM on Price
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• 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% = $450,307
4. Effect of UCD on Price4. Effect of UCD on Price
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34
Price to the FutureWaiting doesn’t work in seller’s favor.Overpricing doesn’t work in seller’s favor.
Price today for the price of tomorrow.Be the more attractive price on the market.
Induce competing offers.Good properties, attractively priced still sell
over the asking price.Sell within 30 days for more than you could expect
in 120 days.Save 3 to 4 month of mortgage payments.
Protect yourself from the incertitude of listing in a depreciating market.
PRICE TO MEET THE MARKET INSTEAD OF CHASING THE MARKET!
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Factor the Market Trend into Factor the Market Trend into PricingPricing
Enhanced PTA Calculator&
How It Works
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3636
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Current PTA vs. Enhanced Current PTA vs. Enhanced PTAPTA
Current PTA
• The trend is determined by analyzing comps:
– Sold 12 months ago;
– Sold 6 month ago;
– Pending sales in the past 30 days;
– Active listings
• The Absorption Rate is calculated but not incorporated in the trend
• DOM are calculated, but not incorporated in the trend
• “Temperature” of the Market is important, but not essential
Enhanced PTA
• Uses absorption rate to determine market appreciation/depreciation (long term trend)
• Uses comparable sold listings to establish the sales price to listing price ratio.
• Applies the variation to the most recently under contract pending listings.
• Eliminates the current active comps
• Temperature of the market is essential
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Math Behind the Enhanced Math Behind the Enhanced PTA CalculatorPTA Calculator
Time
[Months]
Price [$]
0 12116
PTA2
PTA1
30 Days Pending
List Price
6 Month Sold
Price
12 Month
Sold Price
Pending Expected
Sales Price
13 14
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Price to Meet the Market Not Price to Meet the Market Not to Chase Itto Chase It
Your Listing
Your Listing
Market
MarketMarket
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How the Enhanced Calculator How the Enhanced Calculator WorksWorks
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Enhanced PTA Calculator: Enhanced PTA Calculator: Calculation 1Calculation 1
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Enhanced PTA Calculator: Enhanced PTA Calculator: Calculation 1Calculation 1
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Enhanced PTA Calculator: Enhanced PTA Calculator: Calculation 2Calculation 2
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Enhanced PTA Calculator: Enhanced PTA Calculator: Calculation 2Calculation 2
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Enhanced PTA Calculator: Enhanced PTA Calculator: Calculation 2Calculation 2
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Enhanced PTA Calculator: Enhanced PTA Calculator: Calculation 2Calculation 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: Enhanced PTA Calculator: Price GuidePrice Guide
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Enhanced PTA Calculator: Enhanced PTA Calculator: Price GuidePrice Guide
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Enhanced PTA Calculator: Enhanced PTA Calculator: Price GuidePrice 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: Enhanced PTA Calculator: Price GuidePrice Guide
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Enhanced PTA Calculator: Enhanced PTA Calculator: Price GuidePrice Guide
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Enhanced PTA Calculator: Enhanced PTA Calculator: Print PagePrint Page
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Enhanced PTA Calculator: Enhanced PTA Calculator: Print PagePrint 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 ToolkitPricing Toolkit
What to bring:
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Assignment for (insert Assignment for (insert date) date)
1. Hands on practice session using REAL information for a listing or price improvement. No listing? Get one!
2. Download the Enhanced PTA Calculator3. (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
Get Stamped!
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“The only thing you can do to sell real estate right now is price it to sell.”
Jim WeichertNovember 14, 2008