Successful Pricing Takes Market Trends Into Account, Month's Supply of Inventory (MSI)

As discussed in a previous article, determining a baseline value for your home before determining the actual listing price is a good practice. Another good practice is to study and understand the current market conditions before you actually decide on a final listing price.

There are several statics, rates and numbers you can look at when trying to determine the health of a specific Real Estate Market but when we price a home for sale we only consider a few. The primary statistic we want to know about as we prepare to put a home on the market is “Months Supply of Inventory” (MSI). This number indicates how long it would take to sell through all of the existing inventory. Since we are trying to price a specific property, we look at MSI as it pertains to a specific area and price niche not the entire market. MSI for the overall market is more useful when answering a question like “How’s the Real Estate Market”, not so helpful when trying to answer the questions “How much can you sell my house for”?

So, for the purpose of listing a home for sale, we want to drill into a specific area, price range and type of home. For the sake of this article let’s say we are selling a:

    • 4 bedroom
    • 3 bath
    • 3 car garage
    • 2,800 square foot
    • Two-Story home
    • Located in the Academy, District #20 attendance area.

The first step to establishing the Months Supply of Inventory is to find the “Absorption Rate”. This is the number of homes that sell in a particular market segment over a specified amount of time (we use one year).

To establish absorption rate, we look at the total number of similar homes that have sold over the past year. Let’s say there have been 225 sales of this particular type of home over the past year.

This means 18.75 homes like this, sell on average each month (225 sales/12 months). If there are currently 42 homes like this for sale on the market, we have a 2.3 Month inventory of that kind of home. We determine this by dividing the number of available homes by the number that sell per month. It is important to note that Absorption Rate is often expressed as a true percentage, especially in the Commercial Real Estate world but for the purpose of establishing MSI, our method is sufficient. For the purists the actual absorption would be 5.33% of the inventory.

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The MSI in our example ends up being 2.3 Months of inventory. This is a very low amount of inventory and constitutes a “Sellers Market”. Common acceptance of a Seller's market is anything less than 5 Months of inventory is considered to be a Sellers Market.

    • An MSI of less than 5 months = Seller’s MarketAn
    • MSI of 5 to 7 months = Balanced Market
    • An MSI of more than 7 months = Buyer’s Market

markettype

An MSI of 2.3 months would certainly encourage us to move higher on our listing price, although there are still a handful of other factors we look at, like: “Days on Market”, “List to Sold Percentage” as well as trends in the appraisal industry.

Months Supply of Inventory is an essential indicator to know and understand whether buying or selling.

 

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Successful Pricing Starts With a Realistic Baseline Value

The first question on the minds of most people getting ready to sell their home is, how much is my home really worth?

Homeowners thinking about selling have usually gotten an estimate from a home valuation site like Zillow or even asked a Realtor what they thought the value might be. It is important to keep in mind that those numbers should only be used as a rough estimate. Zillow freely admits that their zestimates are on average 8% +/- correct. On an median priced home in El Paso County, Colorado that is about a $20,000 delta +/-, pretty significant, in our opinion. The Zestimate was never meant to be the be the final word, just a rough idea of what the home is worth.

When a homeowner becomes serious about selling, they have a couple of options when it comes to getting the price right. First, they can order a Professional Appraisal, this is a great way to find out the “baseline value” of the property. Appraisers don’t take into account market trends or supply conditions, so their price is a true value but not necessarily a market value. Depending on the current market conditions (Buyers Market vs. Seller’s Market) the actual listing price could be quite different.

The second method, and the one we use when putting a home on the market is called a CMA (Comparative Market Analysis), this is a document that helps us determine the baseline value as well as the best actual listing price of a home.

Ideally a professional CMA examines the sales data and characteristics of the most similar homes, located within the closest proximity to the “Subject Property” (the home we are trying to price). Essentially we look for identical matches to the subject property, we call these matches “Comparables” (Comps) since this is not really possible to find “Exact Matches”, we filter through these comps in order to find the closest matches possible.

The “Comps” are then put into a spreadsheet alongside the “Subject” property so we can start to apply debits and credits to the “Subject” property in order to compensate for any differences. These adjustments are based on things like:

    • Location
    • Square Footage
    • Floorplan
    • Number of Bedrooms
    • Number of Bathrooms
    • Garage Size
    • Lot Size
    • Upgrades

These adjustments show us where the “Subject” property should sell when compared to the Comparable Solds. This figure now becomes our baseline, or the number we start from when choosing a listing price.

There are a number of additional factors we consider before deciding on an actual list price, we will examine these in future articles. Until we have a realistic number to work from or a baseline value, any additional considerations are actually counterproductive.

The first step in any Residential Real Estate sale is setting a baseline value to work from.

If you would like to talk to us about the value of your home, please contact us for a no cost, no obligation analysis.  

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A Little Do-It-Yourself Update For Anyone

My family recently completed a remodel of most of our main level (living, kitchen, dining)... Floor demo + new, cabinets, removed structural wall, added beam, counters...it was a gut job and we love the new. But it took a lot of work, mostly by contractors.

We did a couple tile floor & backsplash projects ourselves, and fortunately my husband and I work well together! Tile isn't for the faint of heart, and you have to have the right tools! I wanted to share another little project we did ourselves. Anyone can do this. We were putting in gorgeous new dark floors and frankly I couldn't stand to bear the thought of looking at our nasty vent covers! I wanted to buy all new. However, I'd seen the idea somewhere (not sure where, because I'm not on Pinterest). I thought we'd try it, and if it turned out ugly, we could still buy new vent covers. If you look at the pictures I post below, the brass ones were seriously disgusting. Now I love them!

 

1) Take out the old vents...

2) scrape them down with steel wool... 

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3) prime with a spray can (maybe twice)....

4) spray paint with your color of choice (definitely twice! with drying time in between). 

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They look SOOOOOO much better!!! The large one on the right I didn't get a before photo, but it was white and obviosuly wouldn't work for this cold-air return built into the cabinet here. In many cases, with carpet or wall/ceiling vents, the black might look really weird. You could freshen them up with white or pewter color. he black looks good in dark floors and cabinets.  

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Buyer Feedback Can Help Sell Your Colorado Springs Home

One of the most important things we, as listing agents, can do is obtain feedback about the properties we list for sale. We know and understand that It’s hard for homeowners to see their homes from an unbiased perspective. Homes hold many memories and stir up emotions that may be hard to relinquish, especially when it’s time to price a home for sale.

As experienced listing agents, our job is to help set a realistic price for the current market; but if homeowners are clinging to an unrealistic expectation, buyer feedback can often help. When an agent shows a home that we have listed for sale, we send that agent a form asking for feedback: what did the buyer think? Were there any issues the buyer pointed out? If you are not bringing us an offer on the property, what could we have done to spark an offer? Homeowners are often surprised to hear the answers to these questions.

Pet odors are a common issue that many homeowners overlook but are often noticed by potential buyers. Maybe the kitchen and/or bathrooms are dated and, consequently, bringing down the value of the home. Sometimes the fixes are easy: fresh coats of paint and deep cleaning carpets can boost a home’s appeal. However, many times, it’s the listing price of the home that deters potential buyers. Setting the right price for the most efficient and profitable sale requires extensive knowledge of what’s happening in the Colorado Springs real estate market, as well as the latest information about mortgage rates and availability. Internet-savvy buyers look at comparable homes for sale in the area and certainly have a good sense as to whether the home is priced accurately for the neighborhood. Although some homeowners want to price their homes based on Zillow and Trulia estimates, these are not always reliable sources as markets can change rapidly and sales data takes time to find its way into those systems.

So, the take-away lesson when listing your home is work with a knowledgeable real estate agent who is familiar with the community and will help set a realistic selling price. And always listen to the feedback.

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How Important are First Impressions?

firstimpressions

The saying "You never get a second chance to make a first impression” has never been truer, especially when it comes to marketing Real Estate.

In the 2013 National Association of Realtors Survey of Home Buyers and Sellers, Home Buyers were asked, “What actions they took as a result of an Internet Home Search?" 75% responded that they drove by or viewed the home while 63% scheduled a walk through. This reinforces our philosophy that the Internet is the new first showing.

This survey also supports our belief that professional photographs, video and virtual tours are essential tools used to drive traffic to our listings.

Here is the complete list of results from the survey.

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ACTIONS TAKEN AS A RESULT OF INTERNET HOME SEARCH
Drove by or viewed home 75%  
Walked through home viewed online 63%  
Found the agent used to search for or buy home 30%  
Requested more information 24%  
Looked for more info on mortgage and home buyers tips 13%  
Pre-qualified for a mortgage online 13%  
Contacted builder/developer 8%  
Applied for a mortgage online 8%  
Found a mortgage lender online 7%  

 

If you would like to learn more about our listing process and what we do to get Colorado Springs Home Buyer traffic to our listings, please visit our Colorado Springs Home Seller Section.

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