Key 2. Establishing value with CMAs
John Duncan MBA BCA Licensed Real Estate Salesperson (REAA 2008)
Using SalesPartner to produce enhanced CMAs with photos and flyers on sold properties, will ensure your vendors are “In the Market”. Detailed CMAs also give buyers confidence to enter the market.
For any property there are many prices;
There is a price that is the minimum price that the vendor will accept. Faced with offers below that “vendor reserve price”, they would prefer to withdraw the property from the market.
There is the investment price, the maximum price at which the property would be attractive to an investor. This is not always dependent on the rental yield but may be a combination of yield and potential capital growth depending on location, condition, and property type.
There is the Valuer’s valuation which would not be easily criticised if it was within 15% either side of the final selling price. But as there are no absolutes to the art of pricing a property, a valuer’s assessment can also reflect the bias of the person commissioning the valuation. Hence the use of arbitration in disputes where valuers advising opposing sides of a “sale at valuation” don’t agree with each other.
There is the ‘Home’ price, the price an emotionally involved purchaser is willing to pay to secure the property as a place to live, have holidays, or bring up a family.
There is the Tender price, the price offered by a purchaser who is aware they may miss out on the property if it is less than other tenders. This is a well-considered offer reflecting the advice they have received from their advisors and often is less than the maximum they would be prepared to pay. This is repeatedly demonstrated by situations where two or more Tenders are close in price and conditions and the salespeople are asked to go back to their buyers explaining that they are in a closely competitive situation and a higher bid could secure the property. This process frequently uncovers higher bids, and we know buyers who have provided a tender can be very aggrieved if they narrowly miss out after being denied the opportunity to improve their bid.
This demonstrates that there is a competitive price, which includes a premium to ensure the buyers do not have to accept the pain of loss which would be felt if they missed out on the opportunity to buy the property. This is the price established from a successful competitive auction or multi-offer situation. This price can be a premium price because the fact that there is open and clear competition for the property can establish a new “market level”. This new market level can be very different from the current rateable valuation or a recent valuation and in itself may become the basis from which the next rateable valuation is established.
Then there is the selling price for which the property actually sells.
There are some key concepts here. Firstly, none of these prices are static. They are affected continuously by the state of the market together with expectations about the future of the market and by the motivation of the parties involved, all of which can change markedly during the selling process.
Secondly, a vendor who wants to release funds to pursue another opportunity, or is faced with high holding costs, will have a lower ‘reserve’ than one who is just testing the market. A buyer who has just missed out on another property and wants to finalise their family accommodation within a set time-frame will usually be more motivated than an investor. A key role of the real estate professional is to encourage convergence between these different prices, to recognise when the best price has been achieved within the current market, and to present that to the vendor in a manner that encourages acceptance.
Comparative market reports have been vital to real estate firms for decades. Thirty years ago a primary feature on which computer systems were judged was the ability to provide information from which to quickly prepare comparative market analysis reports. These early computer systems were tasked with speeding up and improving the manual approach which started with the Real Estate Institute sales books. These provided a three months window on sales in the market place sorted by suburb. The new systems allowed additional selections by bedrooms and by street. In addition CMAs were enhanced by adding details from current and withdrawn listings in the area.
Some of the current CMA tools source sales recorded by real estate firms through the Real Estate Institute and others use sales recorded by Valuation New Zealand from returns by solicitors. The solicitors are obliged to return all sales but these can be up to 90 days after settlement and while usually including floor area, do not include useful details like the number of bedrooms.
Historically in New Zealand, valuers had full access to the sales figures compiled by Valuation New Zealand, and real estate firms had access to the Institute returns and their own sales. As the solicitors’ returns have a delay factor (much longer for subdivisions) there has been some continuing information flow from real estate firms to valuers. Real estate firms and salespeople consider themselves the most up to date and best able to assess the price for property. We believe a critical part of the second key to success is not to let that confidence show too early in the listing process.
A significant change has been that the public now has easy access to comparative sales through online sources. Potential vendors are likely to have looked up sales in the area, visited open homes, and talked to neighbours or other salespeople about sales in the area. Uncovering the expectations this early work on price has built up is an important skill for successful listing and selling.
Most publicly available sales information is based on the Quotable Value information sourced from solicitors up to 90 days after settlement. We prefer the sale details from the Real Estate Institute members which are supplied soon after the sale is confirmed, often even before it is settled, not only because the QV sales can be many months behind the market but also because they will include private sales and inter-family ownership transfers where the sale value recorded has not been tested in the market place. We would encourage members to keep providing that information even though institute membership is no longer compulsory. It is the source of a huge advantage for real estate salespeople and their agencies, and efforts by others to capture this information confirms its value. It is even more valuable now that the Real Estate Agents Authority requires specific price estimates backed up with written evidence when a property is listed.
It is worth pointing out to potential vendors that all the comparable sales in a CMA sourced from the institute sales data have been promoted and marketed by real estate salespeople and their firms. To achieve a similar price for their own property they logically need at least the average level of marketing and promotional support. To achieve a premium they would need well above average presentation, promotion, and marketing processes.
With SalesPartner the current, withdrawn, and sold property details can all be sourced together. REINZ members can access the sales data through their web site, and save a file of sales in a format that can be uploaded into the SalesPartner sales Gallery. You can also add photos to illustrate comparative market reports.
When you or your office set your current listings to Sold in SalesPartner, you will also be prompted to create a sales history record with links back to the original listing and the photos used in your marketing. This original listing will also retain the activity records created during the marketing of the property.