EP24 - How We Price Your House - a podcast by Brian Cook And Kindra Cox

On Episode 24 of The Brian and Kindra Show, they discussed how real estate agents set the asking price of a home. There are four ways that people get a price; 1 - Automated Evaluation Model (AVM); 2 - Comparative Market Analysis (CMA); 3 - Broker Price Opinion (BPO); 4 - Home Appraisal. Listed 1 - 4, least to most in accuracy as well as in cost. 

First the AVM or Automated Evaluation Model. Is an AVM accurate? It can be! Zillow’s Zestimates is a good example.  Their goal is to be within 4.5%, but in some markets they are 20-30% off. In Woodward, the Wheatridge edition has houses ranging from $50K to $230K. What an AVM does is pinpoint the home and averages the price based off of the last sold homes in a 1 mile radius. This is bad because an AVM adds in distressed properties, whereas a realtor doesn’t. A distressed property is bank-owned, a rental property, a family transfer not at full price, or anything needing a lot of repairs.

Second, a CMA. Real Estate agents do a lot of CMA’s. Brian and Kindra have spent years perfecting their model and are always tweaking it. They take into consideration things like location, condition, functionality, age of the home, etc. They compare the property to similar properties that have sold and to similar properties that are listed. They see what the property is competing against and compare it as close as possible to things that have sold just like it. The CMA is not an appraisal and can vary by who it was completed by. Less-reputable agents may present a higher CMA in order to get the seller’s business. 

Thirdly, a BPO. These are more detailed and you have to justify why something is or is not valuable to a property. Brian and Kindra don’t see a lot of these, unless they are doing a relocation or foreclosure. With foreclosures, a foreclosing company might send out 2-3 realtors, for 2-3 opinions, for the same price as an appraisal. 

Finally, a home appraisal. Brian and Kindra get a lot of people asking for an appraisal before listing, discovering that they want an opinion on what to list their home at. Most people don’t want to pay the appraisal fee and realize that CMA’s have enough value to list the property. An appraisal is only as good as the day it was done. The market ebbs and flows and we certainly see that in Woodward. An appraisal does three pricing variations in one report, a market appraisal, cost appraisal, and an income appraisal. Appraisals are 30-40 pages long compared to the AVM report that is only one number, CMAs that are one page, and BPOs that are a couple of pages. 

You don’t need an appraisal before listing a property. Appraisals have their value and are sometimes warranted, but you can get by with a CMA. For Brian, the difference between an appraisal and CMA is, an appraisal proves a value and a CMA is going out to find and set the market value of your home. Realtors want the property to sell in a timely fashion and evaluate where it should sell in today’s market. Does an agent price it low to sell fast? No. Realtors have the numbers to back-up the home price and if it sells quickly, that means it was priced right. Brian and Kindra want their sellers to walk away with as much as possible and want everybody to win. They work hard pricing it to sell in 30-90 days. If it sells quicker, that's great! 

Brian and Kindra hope these tips have been helpful to you. As always, if you have any questions or need help, please feel free to reach out to your local real estate professional.

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