Recently I wrote an article for the Illinois CRS Chapter, Feb. 2010 named Are You On Top of Your Game. This what I wrote:

Most Realtors in Illinois have had no experience with pricing homes in a recession or a depressed market, so we are learning by gathering data from our MLS, watching the inventory for market changes and trying to adjust our brains from the "was value" in the past, to the new, ever changing market of "now value". Never before have we seen so clearly on an appraisal report that indicating the "appraised value is of this date". The value of 2005 for a home, is not the value of 2007, and surely not of 2010. I overheard one agent saying to another "Welcome to the Wild, Wild West." It certainly been a rollercoaster ride the past few years with no sign of the appreciation of values we had in 2003-2005 anywhere in our near future.

So if Realtors are having difficulty comparing sales, conditions and pricing between the short sales, foreclosures and the regular owner market, how can our buyers and sellers understand it? How do we explain and show the new values to the consumer? What is Market Value? The definition from the appraisal community is:

Market Value is the estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arms-length transation after propert marketing wherein the parties had each acted knowledgeably, prudently, and without compulsion.

A foreclusure is similar to Liquidation Value and lately seems to appear at about .50 on the dollar. These asking prices are really an opening bids at an auction, forcing a sale by lowering the price to the ridiculous. A short sale, is similar but the dollar value ofter starts at the price that the Bank should be "whole" with the owners lowering the price to prove to the bank that they are trying to get the highest price possible and an attempt was made to recapture all of its investment. Often times though this can lead to longer market time and encourages the lower offers. The question now becomes, how does all this affect our normal seller. This requires that we explain to sellers about the other influence in our pricing.

The Bank appraisers recently appear to be treating all these sales as equal. They take a 1 mile radius of the area, 3-6 months back and find comparable sales of similar square footage of the building and similar land size, amenities and styles. If he can find those comparables, that is the appraised value. If he needs to expand his search he will find our new normal, the special types of sales. A coroporation who is trying to rid of an asset, an owner with the threat of foreclosure and/or financial difficulties, and finally the homeowner who has owned his home and left his accrued equity and appreciation to stay in his home.

Today, we arm ourselves with graphs and statistics along with comparables to substantiate the value to the client. Terradatum Agent Metrics recently spoke at my Board of Realtors. The host, Peter Krause, reiterated some thoughts on pricing that are worth sharing:

  1. No two buyers will value a property the same way, so buyers are always looking at a range.
  2. Everone is entitled to an opinion of value, but there is only 1 set of facts.

After touring through the market pricing graphs in the program, it showed that overpricing or testing a value is not free. When a property starts at a much higher list price to begin with, the end pricing was more lower than sales where they started their price appropriately. He recommended that you talk of facts rather than emotions of the sale. I remember taking a CRS Listing Course a few years ago. the teacher said, "An overpriced listing is worthless" and I believe our current market confirms it. The Challenge in this market is determining the price while trying to stay on top of the moving price point.

This article was written to Realtors, who have optained the CRS designation. To have this designation, it requires many hours of learning and study, a volume of past business. CRS designees are in the top 4% of the Realtor community.