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Pricing Strategies: Mastering the CMA Pricing Strategies: Mastering the CMA

Earning the PSA (Pricing Strategy Advisor) Certification • • • Complete one-day course Pass Earning the PSA (Pricing Strategy Advisor) Certification • • • Complete one-day course Pass exam Application and $179 one-time fee View two free one-hour webinars Be a member of NAR or one of its international cooperating associations Slide 2 Page 3

PSA Benefits • Differentiation as a PSA at realtor. com and Realtor. org • PSA Benefits • Differentiation as a PSA at realtor. com and Realtor. org • Use of PSA logo and name • Press release • Downloadable PSA Certificate • Monthly enewsletter Slide 3 Page 3

PSA Benefits • PSA lapel pin available through REALTOR® Team Store • No annual PSA Benefits • PSA lapel pin available through REALTOR® Team Store • No annual recertification fee • PSA course is elective for ABR® Designation • Visit www. pricingstrategyadvisor. org for more info Slide 4 Page 3

Introduction • About This Course o Module 1: Principles of Pricing o Module 2: Introduction • About This Course o Module 1: Principles of Pricing o Module 2: Choosing Appropriate Comparables o Module 3: Preparing the CMA o Module 4: Presenting the CMA o Module 5: Working with Appraisers o Module 6: Honing Your Pricing Habits Slide 5 Page 3

Introduction Exercise What challenges do you encounter in pricing discussions with buyers and sellers? Introduction Exercise What challenges do you encounter in pricing discussions with buyers and sellers? Slide 6 Page 6

Module 1 Learning Objectives • Identify the purpose and benefits of CMAs. • Define Module 1 Learning Objectives • Identify the purpose and benefits of CMAs. • Define key terms related to pricing. • Interpret Article 11 of the REALTOR® Code of Ethics as it relates to pricing properties. Slide 7 Page 8

Module 1: Principles of Pricing What is a CMA? The purpose of CMAs Who Module 1: Principles of Pricing What is a CMA? The purpose of CMAs Who needs CMAs? Valuation language and basic principles • Pricing and the REALTOR® Code of Ethics • • Slide 8 Page 8

What Is a CMA? A comparative market analysis is an estimate of the probable What Is a CMA? A comparative market analysis is an estimate of the probable selling price of a property. It reflects: • • An inspection of the subject property Analysis of the subject neighborhood Analysis of the local and regional market Analysis of properties similar to the subject property Slide 9 Page 8

CMAs vs. Appraisals CMAs – Help identify a home’s selling price – Are prepared CMAs vs. Appraisals CMAs – Help identify a home’s selling price – Are prepared by real estate licensees – Intended audience is typically the buyer or seller – Are not appraisals and should not be referred to as one Slide 10 Page 9

CMAs vs. Appraisals – Help value collateral (the property) in a real estate transaction CMAs vs. Appraisals – Help value collateral (the property) in a real estate transaction – Are prepared by licensed or certified appraisers – Intended audience is typically the lender. Slide 11 Page 10

Purpose of CMAs • Establish an accurate value range for a property that a Purpose of CMAs • Establish an accurate value range for a property that a seller wishes to sell or a buyer wishes to buy • Help sellers identify an asking price • Help buyers identify an offer price • Provide an objective, market-driven starting point for pricing properties Slide 12 Page 11

Who Needs CMAs? Advantages to Sellers: ü A fact-based, objective assessment of their home’s Who Needs CMAs? Advantages to Sellers: ü A fact-based, objective assessment of their home’s market value. ü Homes that are priced at true market value don’t languish on the market, causing stress and disruption. ü Protection from undervaluing their home to their financial disadvantage. ü Avoid the delay when they accept a high offer and the property does not appraise. Slide 13 Page 11

Who Needs CMAs? Advantages to Buyers: ü Fact-based, objective information in markets they are Who Needs CMAs? Advantages to Buyers: ü Fact-based, objective information in markets they are not familiar with. ü Less likely to lose homes due to lowball offers. ü Less likely to encounter problems getting a mortgage because house appraises below offer price. ü Less likely to overpay for a home. Slide 14 Page 12

Who Needs CMAs? Advantages to Agents: ü Listings that are priced properly don’t languish, Who Needs CMAs? Advantages to Agents: ü Listings that are priced properly don’t languish, draining time, energy, and income. ü Clients are unlikely to feel resentful about —and blame the agent for—the price they paid or received. ü Clients are more likely to be satisfied and recommend the agent to others. Slide 15 Page 12

Basic Valuation Language/Principles • • Subject Comparable (comp) Competition Adjustment Cost Price Market value Basic Valuation Language/Principles • • Subject Comparable (comp) Competition Adjustment Cost Price Market value Slide 16 Page 14

Cost vs. Price vs. Market Value These three concepts are often confused, especially by Cost vs. Price vs. Market Value These three concepts are often confused, especially by buyers and sellers! • Price might or might not equal market value. • Not all costs contribute to market value. • The goal of a CMA is to determine accurate market value and use it to identify an appropriate asking/offer price. Slide 17 Page 15

Code of Ethics – Article 11 REALTORS® shall not undertake to provide specialized professional Code of Ethics – Article 11 REALTORS® shall not undertake to provide specialized professional services concerning a type of property or service that is outside their field of competence unless they engage the assistance of one who is competent on such types of property or service, or unless the facts are fully disclosed to the client. Slide 18 Page 16

Standard of Practice 11 -1 When REALTORS® prepare opinions of real property value or Standard of Practice 11 -1 When REALTORS® prepare opinions of real property value or price, they must: 1) be knowledgeable about the type of property being valued 2) have access to the information and resources necessary to formulate an accurate opinion Slide 19 Page 17

Standard of Practice 11 -1 3) be familiar with the area where the subject Standard of Practice 11 -1 3) be familiar with the area where the subject property is located unless lack of any of these is disclosed to the party requesting the opinion in advance. Slide 20 Page 17

Interpreting the SOP These provisions of SOP 11 -1 mean that REALTORS® must: 1)Understand Interpreting the SOP These provisions of SOP 11 -1 mean that REALTORS® must: 1)Understand the subject market segment and how it behaves 2)Be able to consult appropriate resources in forming a price opinion 3)Have geographic competence for the subject market Slide 21 Page 18

Interpreting the SOP If any of these is not true, a REALTOR® must disclose Interpreting the SOP If any of these is not true, a REALTOR® must disclose this in advance to the buyer or seller who is requesting the price opinion. Slide 22 Page 19

Exercise 1. 1 Is Agent Alex Competent to Develop This Price Opinion? Slide 23 Exercise 1. 1 Is Agent Alex Competent to Develop This Price Opinion? Slide 23 Page 21

Module 2 Learning Objectives • Recognize appropriate criteria, resources, and guidance in choosing comparables. Module 2 Learning Objectives • Recognize appropriate criteria, resources, and guidance in choosing comparables. • Identify causes of imperfect information and its consequences with respect to pricing properties. • Use appropriate comparables in a CMA. Slide 24 Page 24

Module 2: Choosing Appropriate Comparables • The Goal: Optimal Similarity to the Subject • Module 2: Choosing Appropriate Comparables • The Goal: Optimal Similarity to the Subject • Fundamental Principles for Choosing Comparables • Fannie Mae Guidance on Choosing Principles • Roadblocks to Choosing Comparables • Resources for Identifying Comparables and Analyzing Markets Slide 25 Page 24

Optimal Similarity to Subject The central goal in choosing comparables is to find those Optimal Similarity to Subject The central goal in choosing comparables is to find those that are as similar as possible to the subject: • Physically • Functionally • Geographically Slide 26 Page 24

Characteristics of Comparables • Date of sale of the property • Location • Size Characteristics of Comparables • Date of sale of the property • Location • Size • Amenities • Floor plan or style Slide 27 Page 24 • Age • Number of bedrooms and bathrooms • Garage size • Improvements • Potential negatives

Date of Sale • Comparable’s date of sale should be recent • Ideally, within Date of Sale • Comparable’s date of sale should be recent • Ideally, within 90 days of CMA research • Might need to extend this if comparables are difficult to find • Try to stay within 6 months at the outside Slide 28 Page 25

Location Comparables should be as geographically similar to the subject as possible. Slide 29 Location Comparables should be as geographically similar to the subject as possible. Slide 29 Page 25

Suburbs • Subdivision/neighborhood • Same school if schools a factor • 1 -mile radius Suburbs • Subdivision/neighborhood • Same school if schools a factor • 1 -mile radius if possible City • Condo—same building / complex • ½-mile radius if possible Rural • 5 -mile radius if possible • If not possible, stay within the area as buyers define it (e. g. , a school district) Slide 30 Page 26

Location • Location features such as proximity to a particular school district, public transportation, Location • Location features such as proximity to a particular school district, public transportation, or an industrial area can qualify or disqualify a property as a comparable. • Might be necessary to expand the location range when comparables are hard to find. Slide 31 Page 26

Size Comparables should be the same size or close to the same size as Size Comparables should be the same size or close to the same size as the subject, in terms of both: • Living area • Lot size Slide 32 Page 26

Micro Markets • Very specific, narrowly defined markets, such as Eagles Mere, Pennsylvania. • Micro Markets • Very specific, narrowly defined markets, such as Eagles Mere, Pennsylvania. • Expanding the area to find comparables won’t work. • Must use comps from the same area, no matter how old, and adjust for time. Slide 33 Page 27

Amenities • Comparables should reflect the amenities or features of the subject as closely Amenities • Comparables should reflect the amenities or features of the subject as closely as possible. • The value of an amenity might change over time, with changing demands and tastes. • When considering the importance of an amenity in pricing a property, think about whether it is “hot or not. ” Slide 34 Page 27

Exercise 2. 1 Amenities in Your Marketplace For your market: 1. What are three Exercise 2. 1 Amenities in Your Marketplace For your market: 1. What are three amenities that are tending upward in popularity? 2. What are three amenities that were once popular but are now in decline? Slide 35 Page 28

Improvements include: • Required maintenance • Style updates • Renovations and additions An improvement Improvements include: • Required maintenance • Style updates • Renovations and additions An improvement can be an overimprovement. Slide 36 Page 28

Exercise 2. 2 Improvements in Your Market For your market: 1. What are three Exercise 2. 2 Improvements in Your Market For your market: 1. What are three types of improvements that typical buyers value? 2. What are three types of overimprovements? Slide 37 Page 29

Number of Comparables • At least three. • As many as you can find Number of Comparables • At least three. • As many as you can find that are appropriate. • In markets with many comparables, tools like REALTORS® Property Resource can help you analyze the data. • In markets with few comparables, you might need to expand the search criteria and make appropriate adjustments. Slide 38 Page 30

39 Principles for Choosing Comparables Highest and Best Use • The reasonable and probable 39 Principles for Choosing Comparables Highest and Best Use • The reasonable and probable use of a property that will support the highest present value of the land. • The HBU of the subject might not be the current use. • You must know the correct HBU of subject to choose appropriate comparables and price it correctly. Slide 39 Page 30

Principles for Choosing Comparables Highest and Best Use • Knowing the most current zoning Principles for Choosing Comparables Highest and Best Use • Knowing the most current zoning information for the subject is critical. Without it, you can make a big mistake in estimating worth. • If you find yourself out of your competence zone in determining HBU, seek expert advice. Slide 40 Page 31

Principles for Choosing Comparables Arm’s-Length Transactions An arm’s-length transaction is one in which both Principles for Choosing Comparables Arm’s-Length Transactions An arm’s-length transaction is one in which both buyer and seller act willingly and under no pressure, with knowledge of the present conditions and future potential of the property, and in which the property has been offered on the open market for a reasonable length of time and there are no unusual circumstances. Slide 41 Page 31

Principles for Choosing Comparables • Some non–arm’s-length transactions can be used as comparables, with Principles for Choosing Comparables • Some non–arm’s-length transactions can be used as comparables, with appropriate adjustments. • Some non–arm’s-length transactions should never be used as comparables: – One spouse buying out the other in a divorce – An heir buying out other heirs in an estate Slide 42 Page 32

Principles for Choosing Comparables • Distressed sales are considered non– arm’s-length transactions. • If Principles for Choosing Comparables • Distressed sales are considered non– arm’s-length transactions. • If distressed sales are unusual in the market, they should not be used as comps unless no other comps can be found. • If distressed sales characterize the market, they can and should be used as comparables. Slide 43 Page 32

Fannie Mae Guidance on Choosing Comparables • Fannie Mae’s guidance on choosing comps is Fannie Mae Guidance on Choosing Comparables • Fannie Mae’s guidance on choosing comps is aimed at appraisers and appraisals. • Following Fannie Mae guidance increases the likelihood that your pricing recommendation meshes seamlessly with the eventual formal appraisal of the subject for the lender. Slide 44 Page 32

Interpreting Fannie Mae Guidance • Comps should have similar physical and legal characteristics. • Interpreting Fannie Mae Guidance • Comps should have similar physical and legal characteristics. • Comps should appeal to the same probable buyers (market participants) as the subject. • If a chosen comp is significantly different from the subject, it must be adjusted accordingly. Slide 45 Page 33

Interpreting Fannie Mae Guidance • Comps should come from within the same neighborhood as Interpreting Fannie Mae Guidance • Comps should come from within the same neighborhood as the subject whenever possible. This guideline is flexible if the best comps available are in competing neighborhoods. • If true comps cannot be found for the subject, it might be necessary to use very different properties as comps. Slide 46 Page 33

Roadblocks to Choosing Comparables • Wrong or misleading information in databases • No photos Roadblocks to Choosing Comparables • Wrong or misleading information in databases • No photos available • Too much personal property in contract • Not every sale is a market-driven transaction • Changing markets Slide 47 Page 34

Stable vs. Changing Markets Stable Markets • No more than 3% change in price Stable vs. Changing Markets Stable Markets • No more than 3% change in price in past 6 months • Use comps no more than 6 months old Slide 48 Page 35 Changing Markets • More than 3% change in price in past 6 months • Use comps no more than 3 months old

Resources for Identifying Comps and Analyzing Markets • • • MLS Public records REALTORS Resources for Identifying Comps and Analyzing Markets • • • MLS Public records REALTORS Property Resource® Automated valuation models Agency/company files Slide 49 Page 36

MLS • Facilitates publishing unilateral offers of compensation by a listing broker to other MLS • Facilitates publishing unilateral offers of compensation by a listing broker to other broker participants • Allow members to number crunch multiple possibilities • Aids in determining market trends Slide 50 Page 36

Public Records Most used are: • County Assessor’s tax data • Property records, such Public Records Most used are: • County Assessor’s tax data • Property records, such as deeds, mortgages, liens, and leases • Land surveyor charts Slide 51 Page 36

 • National database of info on 166 million parcels of property in US • National database of info on 166 million parcels of property in US • Public record assessment info, sales history, zoning, permits, mortgage and lien data, neighborhood demographics, schools • Merged with MLS/CIE-provided info Slide 52 Page 38

Using RPR Tools to Prepare a CMA • Property Search • Subject Data • Using RPR Tools to Prepare a CMA • Property Search • Subject Data • Adjustments • Recent Sales and Comparative Listings • Neighborhood Facts Slide 53 Page 38

Automated Valuation Models • Databases intended to match similar properties and sales prices recorded Automated Valuation Models • Databases intended to match similar properties and sales prices recorded • Information is limited to factual data – House size – Number of rooms – Age of house • Might miss other value-influencing characteristics, such as changing neighborhoods Slide 54 Page 40

REALTORS® Valuation Model RPR’s REALTORS® Valuation Model is the only AVM using listing content REALTORS® Valuation Model RPR’s REALTORS® Valuation Model is the only AVM using listing content that is 100% licensed directly from MLSs by RPR. Slide 55 Page 40

 • Provided as an exclusive member benefit for REALTORS® at www. narrpr. com • Provided as an exclusive member benefit for REALTORS® at www. narrpr. com • If your MLS doesn’t share data with RPR, value estimates are based on AVMs using only public info available on past sale Slide 56 Page 41

Other Resources Agency/company files, for sameproperty transactions Slide 57 Page 41 Other Resources Agency/company files, for sameproperty transactions Slide 57 Page 41

Exercise 2. 3 Selecting Comparables Slide 58 Page 42 Exercise 2. 3 Selecting Comparables Slide 58 Page 42

Module 3 Learning Objectives • Explain key principles of pricing that impact CMAs. • Module 3 Learning Objectives • Explain key principles of pricing that impact CMAs. • Recognize correct guidance, as well as common challenges and errors, in adjusting comparables. • Adjust comparables, using values developed from appropriate averages and cost data. Slide 59 Page 54

Module 3: Preparing the CMA • The Role of Supply and Demand in Pricing Module 3: Preparing the CMA • The Role of Supply and Demand in Pricing • Methods of Adjusting Comparables • Fannie Mae Guidance on Adjusting Comparables • Specific Considerations in Determining Adjustments • Potential Mistakes and Special • Challenges in Making Adjustments Slide 60 Page 54

Supply and Demand The principle that the value of any good or service will Supply and Demand The principle that the value of any good or service will rise as demand increases and supply decreases, and fall as demand decreases and supply increases. Slide 61 Page 54

Supply and Demand • Sellers’ market: Demand for homes to purchase is high and Supply and Demand • Sellers’ market: Demand for homes to purchase is high and the supply is low. Home prices are generally heading upward in a sellers’ market. • Buyers’ market: Demand is low and supply is high. Home prices are generally flat or heading downward in a buyers’ market. Slide 62 Page 54

Absorption Rate • The rate at which a particular classification of properties for sale Absorption Rate • The rate at which a particular classification of properties for sale can be successfully marketed in a given area. • Divide current inventory by number of properties selling per month. • Use previous 3 months to determine average absorption rate, then compare to previous month’s rate to see trend. Slide 63 Page 54

Interpreting Absorption Rate Seller’s Market • Absorption rate 1 to 4 months Normal Market Interpreting Absorption Rate Seller’s Market • Absorption rate 1 to 4 months Normal Market • Absorption rate 5 to 6 months Buyer’s Market • Absorption rate 7+ months Slide 64 Page 55

Exercise 3. 1 Using Absorption Rates to Advise Clients • What is the absorption Exercise 3. 1 Using Absorption Rates to Advise Clients • What is the absorption rate? • How should Rita advise sellers for each of the scenarios described? Slide 65 Page 56

Methods of Adjusting Comparables Cost-Based Adjustments • The value of a particular feature of Methods of Adjusting Comparables Cost-Based Adjustments • The value of a particular feature of a property is estimated based on the actual cost to construct or add it. • Not typically used for CMAs, but. . . • . . . Use it when a buyer, logically, would make an adjustment the same way. Slide 66 Page 57

Methods of Adjusting Comparables Cost-Based Adjustments • Contractors and builders can help estimate costs. Methods of Adjusting Comparables Cost-Based Adjustments • Contractors and builders can help estimate costs. • Other sources: – “Cost vs. Value Report” (www. costvsvalue. com) – “Residential Construction and Remodeling Estimates” (www. pillartopost. com) Slide 67 Page 57

Methods of Adjusting Comparables Market-Based Adjustments • The value of a particular feature of Methods of Adjusting Comparables Market-Based Adjustments • The value of a particular feature of a property is estimated based on market knowledge or a paired-sales analysis. • Market knowledge develops with time and experience • In a paired-sales analysis, a specific feature is compared across multiple comparable transactions to isolate its effect on price. Slide 68 Page 57

Paired-Sales Analysis Example • $255, 000 • 2 -car garage Slide 69 Page 58 Paired-Sales Analysis Example • $255, 000 • 2 -car garage Slide 69 Page 58 Sale B Sale C • $260, 000 • 3 -car garage Sale A • $255, 500 • 2 -car garage Sale D • $261, 000 • 3 -car garage

The Value of the Garage Match A Match B With C = $5, 000 The Value of the Garage Match A Match B With C = $5, 000 With C = $4, 500 With D = $6, 000 With D = $5, 500 Slide 70 Page 58

Paired-Sales Analysis Example • We now have four possible quantities for the value of Paired-Sales Analysis Example • We now have four possible quantities for the value of a 3 -car garage versus a 2 -car garage: $4, 500, $5, 000, $5, 500, and $6, 000. • Choose an average of the quantities —mean, median, or mode—to use as the adjustment amount. Slide 71 Page 58

Adjusting for Market Expectations Market expectations are what a probable buyer presumes to find Adjusting for Market Expectations Market expectations are what a probable buyer presumes to find in a house of a particular age, type, location, and price range. If a comparable is lacking a feature the market expects it to have, you must adjust for this deficiency. Slide 72 Page 59

Making the Adjustment • Difference between the comp and the subject property is isolated Making the Adjustment • Difference between the comp and the subject property is isolated • Adjustment based on the market value of the item being adjusted • Adjustments are made to what is known—the sales price of the comp Slide 73 Page 60

Making the Adjustment SBA • Subject better • ADD to price of comp CBS Making the Adjustment SBA • Subject better • ADD to price of comp CBS • Comp better • SUBTRACT from price of comp Slide 74 Page 60

Fannie Mae Guidance on Adjusting Comparables • No limits on the net or gross Fannie Mae Guidance on Adjusting Comparables • No limits on the net or gross amount of adjustments. • Adjustments must be market-based, not arbitrary or boilerplate. • Adjust comparables to reflect any sales or financing concessions. • When appropriate comparables cannot be found, select sales that best indicate the value of the subject and adjust them accordingly. Slide 75 Page 62

Specific Adjustment Considerations: Bedrooms 90 square feet Window that provides emergency exit Natural light Specific Adjustment Considerations: Bedrooms 90 square feet Window that provides emergency exit Natural light and ventilation Hallway access or not (tandem or captive style) • Hallway access more valuable than tandem: Make sure to compare like-style bedrooms • • Slide 76 Page 64

Specific Adjustment Considerations: Bathrooms • Full bath includes three out of four: – Toilet Specific Adjustment Considerations: Bathrooms • Full bath includes three out of four: – Toilet – Sink – Tub – Shower • ½ bath (sink and toilet) • ¾ considered full Slide 77 Page 64

Specific Adjustment Considerations: Gross Living Area • Above-grade areas measured from exterior dimensions • Specific Adjustment Considerations: Gross Living Area • Above-grade areas measured from exterior dimensions • Garages and basements not included • Compare above-grade to above-grade • Rooms not included in GLA add value • GLA is commonly referred to as square footage in MLSs Slide 78 Page 65

Adjusting for GLA • In general, if GLA difference between comp and subject is Adjusting for GLA • In general, if GLA difference between comp and subject is 20% or less, no adjustment is made. • Exception: Small house (800 to 1, 000 square feet). Adjust in this case, because a 20% difference in GLA is significant. Slide 79 Page 65

Specific Adjustment Considerations: Age • Typically no adjustment for age if comp is in Specific Adjustment Considerations: Age • Typically no adjustment for age if comp is in the same neighborhood as the subject. • If one or the other is new construction, appropriate adjustment is needed. Slide 80 Page 65

Specific Adjustment Considerations: Lot Size • Adjustment for lot size not needed if comp Specific Adjustment Considerations: Lot Size • Adjustment for lot size not needed if comp is in the same neighborhood as the subject • Determining land value to adjust for lot size can be very difficult—disclose and seek guidance if this falls outside your competency. Slide 81 Page 66

Potential Mistakes and Special Challenges in Making Adjustments • Double dipping—adjusting for a feature Potential Mistakes and Special Challenges in Making Adjustments • Double dipping—adjusting for a feature more than once • The wrong reasons to adjust – Pressure from a seller or trying to win a client – The only reason to adjust is because the market indicates it • Stigmatized properties • Outliers Slide 82 Page 67

Exercise 3. 2 Adjusting Comparables and Arriving at a Price Range Slide 83 Page Exercise 3. 2 Adjusting Comparables and Arriving at a Price Range Slide 83 Page 68

Module 4 Learning Objectives • Discuss CMA documents and pricing conclusions with clients • Module 4 Learning Objectives • Discuss CMA documents and pricing conclusions with clients • Address client concerns about pricing • Explain value principles to pricing Slide 84 Page 74

Module 4: Presenting the CMA • What the CMA Report Contains • Guiding Clients Module 4: Presenting the CMA • What the CMA Report Contains • Guiding Clients through the CMA Slide 85 Page 74

What the CMA Report Contains Minimum Content: • Description of the market for the What the CMA Report Contains Minimum Content: • Description of the market for the subject • Description of the subject neighborhood • List and descriptions of comparables used in developing a price for the subject Slide 86 Page 74

What the CMA Report Contains Minimum Content (continued): • Analysis of the comparables used, What the CMA Report Contains Minimum Content (continued): • Analysis of the comparables used, including adjustments made • Any commentary needed to clarify procedures and logic applied in choosing and adjusting comparables • Price range for the subject, based on analysis of the comparables Slide 87 Page 74

What the CMA Report Contains Often, disclaimers are included. For example: • This is What the CMA Report Contains Often, disclaimers are included. For example: • This is a market analysis, not an appraisal, and it was prepared by a licensed real estate broker or associate broker, not a licensed appraiser. • This market analysis is based on information we had on [date]. This information might need to be updated. Slide 88 Page 75

Guiding Clients: Understanding the Market • Discuss local market, neighborhood, absorption rate, and what Guiding Clients: Understanding the Market • Discuss local market, neighborhood, absorption rate, and what it means for the client’s situation. • Ask open-ended questions to gauge understanding: “Mr. and Mrs. Seller, what do you think this market data indicates about how quickly your home is likely to sell? ” Slide 89 Page 76

Guiding Clients: Comps and Competition • Show comparables that were used in estimating a Guiding Clients: Comps and Competition • Show comparables that were used in estimating a price range for subject. • Be prepared to explain how you adjusted for differences. • Show competition so that sellers know what they are up against. Slide 90 Page 76

Guiding Clients from Price Range to List/Offer Price • CMA provides a price range, Guiding Clients from Price Range to List/Offer Price • CMA provides a price range, but the buyer or seller must settle on a single quantity. • In addition to comparables, go over other market indicators: – Absorption rate – Sales price/list price ratio – Days on market Slide 91 Page 77

Guiding Clients from Price Range to List/Offer Price • First, ask clients what they Guiding Clients from Price Range to List/Offer Price • First, ask clients what they think: “Mr. and Mrs. Buyer/Seller, after looking at the market information and competition, what offer/list price from the range do you think is right for this home? ” • Be ready to say what you think the price should be, and why. Slide 92 Page 77

Guiding Clients: Getting to Agreement • If the client selects a price within the Guiding Clients: Getting to Agreement • If the client selects a price within the CMA range, mission accomplished! • If not, further discussion needed. – Ask the client to explain his or her reasoning. It might reveal one or more common misconceptions about value. – Address any misconceptions, supporting your points with facts presented in the CMA. Slide 93 Page 77

Guiding Clients: Getting to Agreement • Also, try to reach an agreement with the Guiding Clients: Getting to Agreement • Also, try to reach an agreement with the seller about how much and at what intervals the list price will be adjusted if offers do not materialize at the original asking price. • When clients choose list/offer prices well outside your recommendation, get their written acknowledgment that they have independently decided to do so despite agent’s advice. Slide 94 Page 78

Exercise 4. 1 Recommending a List Price Based on the market value range you Exercise 4. 1 Recommending a List Price Based on the market value range you determined in Exercise 3. 2, what list price would you recommend to the seller and why? What details would you use to persuade a seller not to list above the price range suggested by the CMA? Slide 95 Page 80

Module 5 Learning Objectives • Recognize the purpose of appraisals and the scope of Module 5 Learning Objectives • Recognize the purpose of appraisals and the scope of the appraiser’s role. • Describe how real estate agents can work constructively with appraisers. • Assess an appraisal and proceed appropriately when you think it contains inaccuracies. Slide 96 Page 82

Module 5: Working with Appraisers • The Appraiser’s Role and Responsibilities • Steps in Module 5: Working with Appraisers • The Appraiser’s Role and Responsibilities • Steps in Working with the Appraiser • How to Read an Appraisal Report • When a Property Appraises Below Offer Price Slide 97 Page 82

Exercise 5. 1 Pop Quiz Take 2 minutes to answer the true/false quiz. Then Exercise 5. 1 Pop Quiz Take 2 minutes to answer the true/false quiz. Then we will look at the answers on the next slide. Slide 98 Page 82

Exercise 5. 1 Answers: 1. True 2. False 3. True 4. False 5. False Exercise 5. 1 Answers: 1. True 2. False 3. True 4. False 5. False Slide 99 Page 82

An Appraisal Is: • Used to value collateral in real estate transactions. • Required An Appraisal Is: • Used to value collateral in real estate transactions. • Required for most federally related transactions above $250, 000. • A property value opinion based on one or more valuation methods. • Typically prepared for a mortgage lender or servicer. • Created by a licensed appraiser. Slide 100 Page 83

The Appraiser’s Process 1. Determine appropriate scope of work for the assignment, including: – The Appraiser’s Process 1. Determine appropriate scope of work for the assignment, including: – Type of inspection needed – Approaches to value needed – Any lender-specific requirements 2. Inspect the property, if needed 3. Research the subject property and market area Slide 101 Page 84

The Appraiser’s Process 4. Review recent sales and listings of comparables 5. Develop a The Appraiser’s Process 4. Review recent sales and listings of comparables 5. Develop a value opinion using an appropriate approach: – Sales comparison approach – Cost approach – Income approach 6. Prepare the appraisal report Slide 102 Page 84

The Appraiser’s Client • In a residential property transaction, the appraiser works for the The Appraiser’s Client • In a residential property transaction, the appraiser works for the mortgage lender—the lender is the client. • The homebuyer receives a copy of the appraisal, as required by the Equal Credit Opportunity Act. Slide 103 Page 85

Working with the Appraiser • Meet the appraiser at the property, and be prepared Working with the Appraiser • Meet the appraiser at the property, and be prepared to answer questions about the property and the neighborhood. • Prepare an Appraiser’s Package of relevant information. • Provide additional property information if requested, including a copy of the sales contract. • Return appraiser calls. Slide 104 Page 85

Appraiser’s Package Contents üPlats üDeeds üSurveys üCovenants üHOA documents üFloor plans üSpecifications üInspection reports Appraiser’s Package Contents üPlats üDeeds üSurveys üCovenants üHOA documents üFloor plans üSpecifications üInspection reports üNeighborhood details üRecent similar-quality comparables üDetails lists and dates üEnergy-efficient of upgrades, remodels, features and costs Slide 105 Page 86

Essential Elements of a Credible Appraisal Report • Clear identification of the property appraised Essential Elements of a Credible Appraisal Report • Clear identification of the property appraised • Description of the appraiser’s scope of work • The identity of the client and any other intended users of the report • The intended use of the report • The definition of value used • The effective date of the value Slide 106 Page 87

Essential Elements of a Credible Appraisal Report • Relevant characteristics of the subject • Essential Elements of a Credible Appraisal Report • Relevant characteristics of the subject • Identification of the method(s) used to value the property • Presentation of the method(s) used to value the property • A description of the neighborhood and market conditions for the neighborhood • The appraiser’s final value opinion of the property Slide 107 Page 87

Red Flags in an Appraisal • Incorrect data—For example, the address, parcel number, flood Red Flags in an Appraisal • Incorrect data—For example, the address, parcel number, flood plain number, or census track number is wrong. • Incorrect descriptions—For example, the house, as described, does not appear to be the subject property. • Boilerplate content is now incorrect. Slide 108 Page 88

Red Flags in an Appraisal • Comparable sales are older than is preferred, are Red Flags in an Appraisal • Comparable sales are older than is preferred, are at a greater distance, are not arm’s-length, or are not logical. • Adjustments either don’t make sense, or are not consistent. • A reconciliation of market data doesn’t make sense. Slide 109 Page 88

When a Property Appraises below Offer Price • Lender is unlikely to offer a When a Property Appraises below Offer Price • Lender is unlikely to offer a mortgage above the appraised value amount. • When a home appraises below offer price: – Seller and buyer might decide to re-negotiate – Buyer might walk away from the deal • “Low” appraisals are sometimes the result of distressed markets. If short sales and foreclosures make up the market, the appraiser must use these as comparables. Slide 110 Page 89

Challenging an Appraisal • If you feel that the appraisal is inaccurate in any Challenging an Appraisal • If you feel that the appraisal is inaccurate in any way, contact the appraiser’s client (the mortgage lender) in writing. • Request that your concerns be addressed by the appraiser. • If the appraiser finds that additional credible information is relevant to the appraisal assignment, he or she should provide a revised appraisal with comments that address your concerns. Slide 111 Page 89

The Long Life of an FHA Appraisal • An FHA appraisal stays with the The Long Life of an FHA Appraisal • An FHA appraisal stays with the property for 120 days (4 months). • The agent should have sufficient knowledge to guide the seller on this. • There might be an issue with respect to estimating price when an older appraisal is used in a changing market. Slide 112 Page 90

Module 6 Learning Objectives • Recognize strategies and tactics for keeping up to date Module 6 Learning Objectives • Recognize strategies and tactics for keeping up to date on your markets. • Recognize common client misperceptions about price. • Employ best practices for pricing properties in your daily work. Slide 113 Page 92

Module 6: Honing Your Pricing Habits • Listening to the Market • Educating Clients Module 6: Honing Your Pricing Habits • Listening to the Market • Educating Clients • Revisiting Price • Legal and Ethical Requirements Slide 114 Page 92

Listening to the Market • Stay up to date on market changes – Use Listening to the Market • Stay up to date on market changes – Use MLS tools to analyze various market metrics • Revisit historical data to see trends • Develop contacts to keep abreast of market information outside your expertise • Follow industry news Slide 115 Page 92

Cultivating Contacts • More experienced agents help you refine pricing skills and interrogate your Cultivating Contacts • More experienced agents help you refine pricing skills and interrogate your assumptions in developing CMAs. • Agents in other areas provide insight when you must consider comparables outside the subject neighborhood. • Contractors and home inspectors provide information about repair, replacement, and building costs. Slide 116 Page 93

Cultivating Contacts • Lenders help you keep abreast of changes in mortgage rates, products, Cultivating Contacts • Lenders help you keep abreast of changes in mortgage rates, products, and practices that impact affordability. • Builders provide pricing information on homes that often are not listed in the MLS or public records. • Appraisers confirm or challenge the value of specific adjustments. Slide 117 Page 93

Sources of Industry News • NAR (www. realtor. org) • Joint Center for Housing Sources of Industry News • NAR (www. realtor. org) • Joint Center for Housing Studies of Harvard University (jchs. harvard. edu/) • Freddie Mac (www. freddiemac. com) • Bankrate (www. bankrate. com) for national average mortgage rate daily and average mortgage rates and points in top 10 markets • S&P/Case-Shiller Home Price Indices (us. spindices. com/index-family/real-estate/sp -case-shiller) Slide 118 Page 94

Exercise 6. 1 How Do You Stay Up to Date? 1. List three resources Exercise 6. 1 How Do You Stay Up to Date? 1. List three resources you have used, other than the ones listed above, that you find helpful in staying up to date on your markets. 2. List three resources that you plan to explore or develop in the next 6 months to help you keep up to date on your markets. Slide 119 Page 95

Educating Clients Seven Deadly Seller Sins 1. Pricing higher than the competition 2. Refusing Educating Clients Seven Deadly Seller Sins 1. Pricing higher than the competition 2. Refusing reasonable offers early on 3. Not putting the property in the best possible condition for sale 4. Making showing the property difficult Slide 120 Page 96

Educating Clients 5. Not recognizing that a seller’s home is a buyer’s house (a Educating Clients 5. Not recognizing that a seller’s home is a buyer’s house (a commodity with no emotional attachment) 6. Blaming the agent for the market 7. Not reducing the price in a timely manner, causing market aging Slide 121 Page 96

Educating Clients Five Buyer Bloopers 1. Believing AVMs have the right value 2. Listening Educating Clients Five Buyer Bloopers 1. Believing AVMs have the right value 2. Listening to people who bought houses years ago—the market has changed 3. Believing people who insist that every house is overpriced by X% Slide 122 Page 96

Educating Clients Five Buyer Bloopers 4. Not listening to their agents when they explain Educating Clients Five Buyer Bloopers 4. Not listening to their agents when they explain sellers’market conditions 5. Not getting pre-approved prior to looking at properties, and then finding they can’t afford what they want; then expecting the seller to come down for them Slide 123 Page 97

“I Should Have Asked for More!” • When homes sell quickly, sellers can be “I Should Have Asked for More!” • When homes sell quickly, sellers can be quick to think they should have set a higher list price. • Agents who have done their due diligence on pricing can explain that a prompt sale indicates appropriate pricing for the market, which resulted in a timely sale. Slide 124 Page 97

Putting Sellers in the Driver’s Seat Another good way to educate sellers is to Putting Sellers in the Driver’s Seat Another good way to educate sellers is to put them into your MLS prospect search as if they were buyers for their own home. ü Keeps them informed about the current market ü Lets them see with their own eyes rather than see information filtered through you ü Keeps communication lines open in case it becomes necessary to revisit price Slide 125 Page 97

126 What Clients Can and Cannot Control Clients Can Control: Clients Cannot Control: • 126 What Clients Can and Cannot Control Clients Can Control: Clients Cannot Control: • Putting property in • The economic climate (e. g. , interest the best possible rates, employment light for sale • Facilitating showing rates) • The supply of of the property available homes Slide 126 Page 98

Educating Clients The Pricing Pyramid • A visual tool for helping sellers see the Educating Clients The Pricing Pyramid • A visual tool for helping sellers see the drawbacks of overpricing. • Illustrates that as list price increases above market value, a smaller percentage of potential buyers will look at the home. Slide 127 Page 99

The Pricing Pyramid Slide 128 Page 99 The Pricing Pyramid Slide 128 Page 99

Revisiting Price When a listing is languishing in spite of timely and reasonable price Revisiting Price When a listing is languishing in spite of timely and reasonable price adjustments: • If you used competition in your original CMA, revisit it to see if any of them have sold and, if so, at what prices. • Review current market data, including list price/sales price ratio and days on market. • Revisit your original CMA and see if you used the correct comps. Slide 129 Page 100

Revisiting Price • Ask the agents who have shown the listing what feedback they Revisiting Price • Ask the agents who have shown the listing what feedback they have gotten. • Talk to the clients about having an appraisal done. Slide 130 Page 100

Confidentiality Obligations • CMAs are subject to confidentiality requirements as specified by state law. Confidentiality Obligations • CMAs are subject to confidentiality requirements as specified by state law. • The REALTOR® Code of Ethics, Article 1, Standard of Practice 1 -9, addresses the issue of agency confidentiality. Slide 131 Page 100

Confidentiality Obligations REALTORS® shall not knowingly • Reveal confidential client information • Use client Confidentiality Obligations REALTORS® shall not knowingly • Reveal confidential client information • Use client information to a client’s disadvantage • Use client information for REALTOR®’s or third party’s advantage Slide 132 Page 100

Records Retention • Follow state license laws • Retain CMA records for at least Records Retention • Follow state license laws • Retain CMA records for at least 1 year Slide 133 Page 101

Exercise 6. 2 Your Challenges in Pricing Discussions At the beginning of this course, Exercise 6. 2 Your Challenges in Pricing Discussions At the beginning of this course, you were asked to identify two or three challenges you encounter in pricing discussions with buyers and sellers. Thinking back on them, what strategies or tactics discussed in this or any of the previous Modules do you think will help most in addressing those challenges, and why? Slide 134 Page 102

Conclusion • Questions on course content • Course evaluation • “The key learning or Conclusion • Questions on course content • Course evaluation • “The key learning or chief benefit of this course was. . . ” • Course exam Slide 135 Page 103