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Today’s Talking Point 10/7/09

Pricing a Property Properly Part 1

Today, will be the beginning of a three day review of the components to pricing a property properly in today’s market. The three points covered will be:

Today: The Competitive Market Analysis (CMA)
Tomorrow: Absorption Rates
Friday: Accumulation Rates

The CMA is an interesting instrument in today’s market. It was invented to show the gradual movement of prices by reviewing the sales of like homes over the previous six months, like homes under contract and the homes currently on the market which could be seen as competition. The assumption (and a pretty good one for over 200 years) was that home prices would not dramatically move in either direction. Therefore, what has sold recently and what was currently competition were good indicators of future prices.

There was no need to look at the current environment or future changes because everything was based on past housing performance. It is my opinion, in our current housing environment, the CMA is worth just about what we charge for it – nothing. Now, I realize that can be seen as a bold and controversial statement. But, I believe it to be true. We must be like any other business and use the theory of ‘supply & demand’ to determine whether prices will rise or fall instead of just looking at those that sold and are on the market.

Tomorrow, we will cover ‘absorption rates’ and how to use them to price a property.

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