How agents persuade sellers to accept lower prices.
by Neil Jenman
Article written and provided by Neil Jenman from Jenman.com.au . To see the original source of this article please click here. https://jenman.com.au/the-real-estate-comparison-trap/. Neil Jenman is Australia’s trusted consumer crusader. He can support you, all the way, from choosing an agent who will get you the highest price guaranteed to when your removalist comes! You get an unprecedented level of total support. All for free. To find out more visit jenman.com.au
READING TIME: 90 seconds apx
Most parents are acutely aware of one of the most important rules in protecting children: “Be careful who they hang around with.”
Most home sellers, however, are unaware that a similar rule applies to homes. If you want to achieve the right price for your home, don’t allow your home to be compared with similar homes that have sold.
The reason is simple: Most homes are under-sold.
THE CMA TRAP
A Comparable Market Analysis (CMA) is a common tool in real estate.
Here’s how it works: When you want to sell your home, most agents compile a list of similar homes that have recently sold. Beside each home will be the price at which that home sold.
The purpose of this CMA is simple: to prove to you the real value of your home.
A CMA is also used when agents try to persuade you to accept an offer on your home, usually at a much lower price than you were originally promised.
A CMA is convincing and powerful. It persuades home sellers to lower their prices. That’s why CMAs are so popular with agents.
But there is a major flaw with all CMAs. This flaw can easily cost sellers tens (often hundreds) of thousands of dollars.
The flaw is this: Most of those comparable homes have been undersold. If you accept the “proof” in the CMA, your home will also be undersold.
If you want the best price for your home, don’t compare it with homes that have been undersold.
Extensive research over many years has uncovered an important fact: Most homes are undersold. The dollar amount by which these homes are undersold is often about 10 per cent of the sale price. Sometimes much more.
So, if a home is sold for $2,000,000, it has probably been undersold by $200,000. It should likely have sold for $2.2 million.
With public auctions, it’s common to find homes that have been undersold by as much as 25 per cent. This is because auctions focus on the lowest price sellers will accept instead of the highest price buyers will pay. If you compound the mistake of selling by auction with the mistake of believing that comparable sales indicate the best market price, it will be nearly impossible for you to achieve the best market price.
The best way to protect yourself is this: When you see all those comparable sales in the CMA, say to yourself, “They should have sold by about 10 per cent more.”
If you don’t believe it, try speaking with recent home buyers – especially those who bought at a public auction. You will be shocked at the difference between the price buyers paid and the price they were prepared to pay.
To prevent your home from being undersold, be wary of CMAs.
And, as always, stay away from public auctions – the worst way to sell any home at any time.