The Great Pricing Pyramid of Real Estate

What is this?

This is the pricing structure pyramid Realtors use to illustrate the power of properly pricing homes. The market value of your home is determined by a Comparative Market Analysis (a.k.a. CMA).  The CMA summarizes the pricing of homes similar to yours that have sold or are on the market in your area. Realtors will make appropriate adjustments to the “comps” to come up with a suggested market value for your home. The figures on the pricing structure pyramid will fluctuate a bit depending on inventory levels, so having a Realtor that knows the current market temperature is important. 

How does it work?

Say your Realtor determines your home has a market value of $500,000.  You’re looking to get rid of the home quickly, but aren’t in a desperate situation. In this case, your Realtor may price the home right at the $500,000 market value, figuring that a healthy amount (60%) of potential buyers will look at the property and hopefully snatch it off of the market in a reasonable amount of time. Pricing your home too low, however, could raise some red flags. So while 90% of potential home buyers might look at your property if it is priced at $425,000, many buyers (and other Realtors) will question the low price and be discouraged from looking at the property in fear of finding structural issues, major repairs, or just poor upkeep. 

What actually happens?

Every Realtor has his or her own pricing strategy. Some price high in hopes of hitting a home run, knowing they can always lower the price if the market rejects the initial offering. However, as mentioned above, if you’re looking for maximum exposure to the buying public, pricing your property close to market value is the key.  Pricing a home can be a tricky proposition.  Factoring in market trends and seasonal adjustments plays a major factor.  Be certain to hire a qualified Realtor to help you with the process.