Using Price, Projection, Probability Model

When talking with sellers, it is sometimes difficult to talk about how much to list their home for.  As a professional real estate advisor, it is your duty to ensure that they make the right decisions along the sales process including picking the right price.  One helpful tool is a model that I call the Price, Probability, Projection model.

Price is simple.

Probability is the chance at which the property will sell.

Projection is the days on market before you think the property will sell.

Take a look at the following chart.  The centre red area indicates the range in which houses in the area are sold at, and the dark red is the range in which you through your CMA believe that the property should be listed at. The Blue line, is the Price line which is measured along the Y axis, and along the X axis is the Projection - the days on market.  As you can see as the Price increase, the days on market increase as well.  The Green line is your Probability of Sale line, and as the price increase, and the projected days on market increase the probability drops.

This is a simple visualization of general sales trends.  As one increases their price, the expected days on market increase, and the probability of the sale happening drops.  So finding that perfect price point is critical to ensuring a high sale price, while also selling in a reasonable time - using a visual like this is helpful in communicating that message to sellers.

It is also a simple way to discuss other aspects of a listing such as the amount of money that you are wiling to invest into the listing.  For example, if you have a client that wants to list their property for more than what you believe their property is worth, you can show them this type of chart and say that based on the their list price, you believe that the probability of a sale is too low to justify investing your money for the marketing, however that you would be happy to list the property at that price if the seller were to pick up the cost of the marketing thereby offsetting your risk against the low probability of sale. Otherwise you would pay for all the marketing but the list price would have to be at least within the reasonable range as per your CMA.

Remember, your clients are intelligent, successful people and they will be more receptive to your suggestions if you can reason with them on a pragmatic, logical level which tools like this help do. 

 

 

 


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