TODAY S BUYER S REP A p u b l i c a t i o n o f t h e R e a l E s t a t e B u y e r s A g e n t C o u n c i l, I n c. A w h o l l y - o w n e d s u b s i d i a r y o f t h e N a t i o n a l A s s o c i a t i o n o f R E A LT O R S January 2016 Volume XXV Num ber 1 The Price Is Right Essentials for Buyer s Reps Determining what properties are worth and counseling buyers on how to price their offers can be difficult. Since the start of this century, many real estate markets have experienced significant ups and downs, while buyers have gained easy access to online property estimates that are often inaccurate. Determining property values and educating clients are more challenging than ever. Why should buyer s representatives sharpen their pricing skills? If knowledge is power, pricing expertise may be an agent s strongest resource. Consider the benefits: Manage buyer expectations. Buyers like the idea of paying rock-bottom prices, but you ll be more successful at adjusting their expectations if you re good at researching and presenting current market FACTS. Negotiating skills. If a seller s expectations are out of line, you may be able to win acceptance of your buyer s offer with a credible explanation of the facts supporting their price. Appraisal issues. Strong pricing skills are also beneficial if an appraisal comes in higher or lower than your buyer s contract price. You ll be better at interpreting the appraisal, spotting any red flags, explaining discrepancies, and troubleshooting next steps. Risk reduction. Pricing complaints are among the top legal claims against agents. Avoid them! Referrals. If clients are confident that you ve provided fair guidance, especially concerning price, they re much more likely to feel satisfied and recommend you to others. To help your buyers make the most informed pricing decisions, it s essential to begin with a closer look at agents primarily pricing tool the Comparative Market Analysis (CMA). Continued on page 3 LOOK INSIDE... 5 Things You May Not Know about RPR page 4 New Consumer One-sheet: How Much Should I Pay? Pricing Considerations page 7
MEMBERSHIP UPDATE WORTH QUOTING... Price is what you pay. Value is what you get. - Warren Buffett Member Benefit Spotlight: REBAC Print Shop Looking for customizable flyers, postcards, and brochures to attract and work with new buyers? Look no further than the REBAC Online Print Shop. If you haven t already investigated this member benefit, you ll be pleasantly surprised at the wide variety of messages and formats, all customizable with your photo and contact information. NEW! REBAC s Home Buyer s Toolkit has been updated to reflect recent changes to mortgage disclosure rules under TRID (TILA-RESPA Integrated Disclosure). Customizable copies of this valuable resource for buyers can also be ordered online. For samples and ordering details, visit the Member Center of REBAC.net. Be your own landlord When you want to buy, your ABR will bring you home. Homeowners can paint their walls yellow When you want to buy, your ABR will bring you home. NEW! Pricing Strategy Advisor (PSA) Certification If this issue of Today s Buyer s Rep has piqued your interest in mastering your pricing skills, consider taking the next step become a certified Pricing Strategy Advisor. Why? Determining property values depends more than ever on professional expertise and competence, the best use of technology, and approaching the pricing assignment from various perspectives. Enhance your skills in pricing properties, creating CMAs, working with appraisers, and guiding clients through the anxieties and misperceptions they often have about home values with the PSA certification. How? To earn the PSA certification, you must complete the new one-day course, Pricing Strategies: Mastering the CMA (either online or in a classroom setting) and complete two one-hour webinars 1. To locate a course near you, and submit a one-time application fee of $179, visit Training4RE.com. To take the class online, visit the Center for REALTOR Development at OnlineLearning.REALTOR. Special Offer: During January 2016, you can receive a 25 percent discount on the online version of Pricing Strategies: Mastering the CMA. Bonus! Pricing Strategies: Mastering the CMA is an approved elective for the Accredited Buyer s Representative (ABR ) and Seller Representative Specialist (SRS) designations. To learn more about the Pricing Strategy Advisor certification, please visit PricingStrategyAdvisor.org. 1 You must also be a member in good standing with the National Association of REALTORS to earn and maintain your PSA certification. Connect online with fellow ABR designees for news, tips, and referrals! @abrebac REBAC.net 2 TBR January 2016
The Price Is Right Essentials for Buyer s Reps Continued from page 1 What Is a CMA? A CMA is an estimate of the probable selling price of a property, typically expressed as a price range. Many buyer s representatives prepare CMAs to help their buyer clients make educated offer-price decisions. Since there are no official CMA formats, agents can prepare them however they choose, as long as they reflect the following: An inspection of the subject property An analysis of the subject neighborhood An analysis of local and regional market information and trends A description of comparable properties that are similar to the subject property In theory, creating a CMA should be relatively straightforward. Several challenges, however, may stand in the way, including: 1. Competence. How well do you know the area where a subject property is located? The Code of Ethics makes it very clear that REALTORS must be competent in preparing price opinions. That said, every market is new at some point in every agent s career. Competence is gained through experience and working with other knowledgeable real estate professionals. So what do you do if someone asks for help buying property in an unfamiliar area? First, ask yourself what resources are needed to accurately price the property and whether you ll be able to access them. Second, do you have geographic competency? Every market has quirks and nuances that outsiders may not understand. If your competence is lacking either in terms of access to information or familiarity with a market you must disclose this to your buyer before proceeding with a price opinion or representing them as a client. If they still want to proceed, fine. But document the disclosure in your transaction file, adding a copy of any written documentation (e.g., an email exchange) or detailed notes about the conversation. 2. Choosing comps. When preparing CMAs, the goal is to choose comparable properties that are as similar as possible to the subject home, reducing the need to make price adjustments. While the date of sale, the location, and size of the property (living space and lot size) are the most important criteria, many other characteristics may also require consideration. (See table, below.) Continued on page 6 Choosing Comparable Properties (first three criteria are most important) Criteria Date of Property Sale Location Size Amenities Improvements Floor Plan/Style Age Number of Bedrooms and Bathrooms Garage Size Potential Negatives General Guidelines 90 days or less. Geographically similar (tightest radius for urban markets; largest for rural markets). As close as possible, in terms of living area and lot size. Includes finished basement, swimming pool, fireplace, etc. Adjust for the importance of the amenity. Includes required maintenance, style updates, additions, etc. Adjust for improvement vs. over-improvement. As similar as possible. May be more important in buildings/developments with duplicate models. As similar as possible, with adjustments for overall condition. As similar as possible. Make sure bedrooms and bathrooms meet minimum requirements (size, emergency exit, features, etc.). As similar as possible. May include proximity to busy roads or other undesirable features. TBR January 2016 3
5 Things You May Not Know about RPR Realtors Property Resource (RPR ) is a comprehensive online database and powerful analytics tool created by NAR for the sole purpose of providing REALTORS in the U.S. with the data they need to meet clients demands and easily generate numerous, impressive reports. Only U.S. REALTORS have access to this no-cost member benefit that includes over 160 million on-and-off market properties. 2 Are you making the most out of RPR? 1. Comp Analysis YOUR Way RPR makes it easy to evaluate properties and create impressive CMAs for clients. Use its powerful database to quickly and efficiently compile local market trends and select comparable properties, layering in your personal market expertise to make appropriate price adjustments for comps. Additionally, in a recent update, RPR made it easy to conduct two different types of evaluations a Comparative Analysis (most commonly used for CMAs) or a Sales Comparison Analysis (a workflow for appraisers). You can also switch from one type of analysis to the other without re-entering property 0% details. We re going to travel through the anatomy of an RPR Property Report to show you what it s 2. Property Reports Buyers want to know everything they can about a home they might call their own, including its history and local market trends. With RPR s extensive collection of public records and MLS data (if shared by your MLS) 1, you can easily generate reports containing essential neighborhood data (economic stats, unemployment rates, households with children, etc.) and share key facts on a home s history (for example, whether or not the property has ever been distressed). 3. Market Activity Reports RPR makes it easy to be a local market expert, with market activity summaries on active, pending, sold, expired, and distressed properties, including recent price changes. When generating a Market Activity Report, you decide whether you want a snapshot that goes back for days, weeks, or up to three months. In addition to maintaining a pulse on your market, try sending periodic updates to potential clients. It s a great marketing tool! Plus, you can define your market with numerous mapping options. In addition to conventional geographic boundaries like zip codes, neighborhoods, cities, or counties, you can create your own customized maps by drawing an outline or using various search criteria, such as radius or drive time. In addition to aerial, road, and overhead views, you can also create layered heat maps (graphical representations of an area s home values, average sales price, flood zones, square foot values, distressed properties, and more). 5,000 4 TBR January 2016
0.75 5. Great in the Field! Take RPR with you while showing homes. RPR Mobile provides on-the-go access for ipad and Android tablets and smartphones. Use it to instantly view nearby properties, get listings, sales, valuation, foreclosure, school stats, and market trends. Plus, if your buyer wants a copy of reports generated in the field, simply text or email them directly from your mobile device. 4. Support Different Buyer Objectives Learn More Some buyers are more interested in a property s investment potential, whether they intend to improve a home for quick sale, earn rental income, or hold it with an eye towards future price appreciation. RPR makes it easy to support these clients with Investment Analysis Tools that simplify the process of identifying properties and analyzing their investment potential based on rent, re-sell, or live-in scenarios. New features and enhancements are constantly being added to RPR. To stay current on the latest developments or tap into extensive training resources, go to blog.narrpr.com. 2 Access to MLS records is dependent on MLS partnership with RPR. To find out if your MLS participates in RPR, go to blog.narrpr.com/rpr-partners. After identifying initial prospects, refine your analysis by examining nearby property values, local price trends, and generate refined values for home/market conditions and needed improvements. For rental properties, RPR greatly simplifies the process of generating spreadsheets based on different investment scenarios (aggressive, moderate, conservative), purchase assumptions, 95.5 income assumptions, and more. TBR January 2016 5
The Price Is Right Essentials for Buyer s Reps Continued from page 3 How many comparables should be included in your report? At least three. If you re able to identify more appropriate properties, however, this will only strengthen your analysis. If the number of properties starts to feel daunting, turn to tools like Realtors Property Resource (RPR ) to streamline this task. (See page 4 for more on RPR.) Current listings that are directly competing with a subject property can also be included, but should appear in a separate section of your report. ABSORPTION RATES To analyze the current supply and demand of homes, examine absorption rates the number of competing properties currently on the market divided by the number of properties selling each month. Most agents go back 3 months to determine an average absorption rate and compare this to the previous month s absorption rate to identify market trends: Market Conditions Sellers Market Normal Market Buyers Market Absorption Rate 1-4 months 5-6 months 7+ months 3. Making price adjustments. Two primary methods are used for adjusting property prices in a CMA: cost-based and market-based. Certain property features are better assessed with one method over the other, whereas other features can be adjusted either way. If you re making cost-based adjustments (replacing a roof, fencing in a yard, etc.), it s essential to have solid resources for construction and repair costs, which can vary significantly from one market to another and over time. For this reason, it s best to have a good network of local contractors. If you haven t developed these resources, you can get broader-based estimates from the 2015 Cost vs. Value Report (costvsvalue.com) or Residential Construction and Remodeling Estimates (pillartopost.com). Market-based adjustments, on the other hand, rely on an agent s personal experience with a market, along with their understanding of buyers current preferences. If you encounter a feature that s uncommon or unfamiliar, you can also rely on a paired-sales analysis (i.e., comparing two properties that are identical in every aspect except one) to isolate the value of a particular feature. Guiding Clients When presenting a CMA, buyers are usually tempted to jump to the bottom line the price range that emerges from your analysis. Help them resist this urge and guide them through the key details behind your analysis. It will help your buyers develop a stronger appreciation of important market facts as well as your skill and expertise in preparing the report. (What a great way to earn clients confidence!) Also, use this opportunity to share other pertinent facts about market conditions, such as current sales price/list price ratios and absorption rates (see sidebar). If it s time to write an offer, you ll also want to consider any other information that could guide your negotiating strategy, such as how long the property has been on the market or anything else you can discern about the sellers situation. Finally, if your buyer wants to write an offer substantially below the range suggested by your CMA, ask them to sign a written statement acknowledging that their decision is independent of their agent s advice. This will help drive home the point that they are on their own concerning their pricing decision while also protecting you from any potential complaints that could arise. Share this with your buyers! Download more copies of this consumer one-sheet and 35 other topics in the Member Center of REBAC.net. 6 TBR January 2016
How Much Should I Pay? Pricing Considerations Real estate agents frequently use a Comparative Market Analysis (CMA) to estimate a property s probable selling price. CMAs help sellers decide on a listing price, whereas buyers use them to determine how much they want to offer for a property. While sellers and buyers have naturally opposing price preferences, a CMA is designed to be a completely objective evaluation, based on recent and actual selling prices for comparable properties. Since real estate markets can change quickly, it s essential to recognize that a CMA only provides a snapshot for a particular point in time. The comparable properties included in a CMA should be similar, recently-sold homes. When selecting comps, the date of sale, location, and size of a home are the most important factors, but amenities, floor plan/style, age, number of bedrooms/bathrooms, garage size, improvements, and potential negatives may also be considered. When reviewing a CMA to structure an offer on a particular property, it s also helpful to examine the following: Competing properties are substantially similar homes that are currently listed for sale. Since they haven t sold yet, they re usually distinguished from other comps in a CMA. Sellers know they are competing against these properties, so it s important for buyers to factor them into their negotiating strategy. Absorption rates are used to analyze the strength of a market, in terms of the supply and demand for current competing properties (the number of homes on the market relative to the number of homes sold). A low absorption rate indicates that sellers are in a stronger position whereas a high absorption rate is favorable for buyers. Days on market may indicate how appropriately a property has been priced for sale, especially when compared to absorption rates. If, for example, the absorption rate is two months, but a competing property has been listed for over three months, a potential buyer of that property might have a stronger negotiating position. Sales price/list price ratios for specific categories of homes may help buyers understand how much less than the listing price they can realistically expect to achieve. Each of these factors, and others, are important considerations in your negotiating strategy, particularly concerning price. Your buyer s agent is your best resource for professional insights on current market conditions. With their assistance, you ll be in a better position to make an informed, realistic, and winning offer on your next home. The Accredited Buyer s Representative (ABR ) designation is awarded by the Real Estate Buyer s Agent Council (REBAC), a subsidiary of the National Association of REALTORS (NAR). To learn more about REBAC and access various home buyer resources, please visit REBAC.net. TBR TBR TBR September December January May 2015 2014 2016 7
Real Estate Buyer s Agent Council, Inc. 430 North Michigan Avenue Chicago, IL 60611 1-800-648-6224 REBAC@realtors.org TODAY S BUYER S REP January 2016 Volume XXV Number 1 REMINDER: Have you renewed your membership dues? If so, thank you! If not, please don t forget to renew soon so you can keep receiving Today s Buyer s Rep and other valuable member resources. We re proud of all the benefits offered by our organization, as well as the fact that membership dues have remained at their current level since 1996. You can pay your dues online by logging into the Member Center at REBAC.net. From our secure payment site, you only need to confirm your membership and payment information. It s that easy. Please renew today! We look forward to helping you make 2016 your most prosperous year!