It’s a well-known fact that the real estate market is cyclical. Sometimes, it’s up, and other times it’s down. Agents who are constantly chasing the market are likely to find themselves on a roller coaster ride – one that can be both emotionally and financially taxing. While there is always change, it’s important to comprehend how that change affects you, the buyers and sellers, and market values.
We know that a good CMA, Comparable Market Analysis, can help buyers and sellers understand the value of their house, and even help real estate agents. But did you know that when real estate prices start to decline, these valuable tools can turn into a nightmare if we don’t understand the proper way to review the market statistics?
In this post, let’s take some time to understand the overall CMA and how it creates a situation where we “chase the market down”.
CMA’s review past sales
When preparing a CMA, we always pull past sales. Usually, within the past 90 days, we find similar sold properties.
The past market was higher
What if the sales prices were higher in the past 90 days than they are now? In other words, what if sellers are consistently dropping prices due to market changes? Many things can cause markets to shift. Some of the recent include interest rate increases, inflation on other goods and services, overall housing costs increases, and the economy as a whole. When a market is in a “declining mode”, prices are getting cheaper, therefore the same house a few months ago could now sell for a bit less. This is a problem if that house is your comp in your CMA. It doesn’t show a true value since prices are declining. How do you know if you are in a declining market? Look at how many price reductions you are having regularly.
What’s a reliable source then?
Since your CMA may come out higher than the current value, what’s a reliable source to lean on? Active listings. Yep, active properties on the market. This shows where the market is heading, not where it was 90 days ago. It is the most current tracker we can use. If sellers have lowered prices to attract buyers, you will know that when you review the active listings.
Let me give you an example. Let’s say you have a property you’d like to price. You do a CMA, and the value comes in at $460,000. However, when you look at the active listings and compare similar properties in size and location, the prices range from $410-422,000. This happened to me recently. Had I placed the property on the market for the suggested CMA value of $460,000, I probably wouldn’t have had any activity. In a few weeks, we would have lowered the price. Another few weeks of no activity, another price reduction. Then another few weeks, now with an antsy seller, another price reduction. All with little to zero activity. If the market is declining, your price reductions will have little impact since you are still on the higher end of the pricing, just chasing the market down as it continues to decline.
Keep in mind with this example, your seller may become very impatient with you and frustrated and might even fire you for a different real estate professional that prices their property appropriately and gets it sold within a reasonable time frame. All in all, you have wasted your time. You didn’t get to sell the property and your reputation has a tarnish.
Don’t chase the market down!
On another note, if you have found that rising interest rates and the economy has stopped your business, you want to check out my 90 days to Success Coaching Series. This can get your business back on track and in overdrive in less than 90 days, no matter the market!
If you’re looking for more ideas to implement into your real estate business to achieve success, be sure to read The Standout Agent, available on Amazon and everywhere books are sold. There’s a reason why it quickly became a #1 seller!
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Until next time…