We all learned how to evaluate a property in ‘Real Estate School’ using the Price Adjustment Approach. It works great in the textbooks. 📚
Not so much in the real world.
Over time, I developed my own evaluation system that makes waaaaay more logical sense to both myself and my clients, The Big Picture CMA.
This system takes up an entire module in the Master’s Program, but the information is actually spread across three modules: Setting the Stage, the Big Picture CMA, and Pricing Psychology.
It’s not complicated. It’s just not possible to fully comprehend it within the confines of a tiny blog post. You know what they say about a little bit of knowledge being dangerous.
However, I will explain why I believe that the price adjustment approach is not particularly useful in the real world.
Pricing is an Art and a Science
There’s no way that anyone can accurately predict the future sale price of a property. There are way too many moving parts at play, including that it’s impossible to know when and where the perfect buyer might appear.
We play the averages, and those of us who are skilled and experienced can get closer to the price than those of us who are unskilled and inexperienced.
But it’s still an educated guess, at best. 🤔
It’s not reality that you can dump all the data into a giant spreadsheet and out pops the exact sale price. Engineers and accountants hate this fact! But you’re doing them a disservice to suggest anything otherwise.
That’s why I dislike the price adjustment approach to valuation. It’s too exact.
The Blank Stare
Other agents used to pop their head into my office all the time and ask me pricing questions.
“Hey, Ted. Most of the houses in this neighborhood have double-car garages, but this one has a triple. How much should I adjust for that?”
I’d stare at them with a blank face and say nothing while thinking, “How the hell should I know?” 😕
To me, this was like giving me one piece of a jigsaw puzzle and asking how I liked the complete picture.
To provide a reasonable answer, I’d ask approximately 1,000 questions about the property, the neighborhood, the comparables, the target buyer, etc. Then I’d give a general overview of how important I thought the triple-car garage might be considering all the other factors. I never provide an exact number, which is what they wanted.
Those agents never poked their head in my office ever again. I guess my system sounded complicated (?).
It’s not, actually. But it’s like not understanding a sport until you know all the rules; then it makes perfect sense.
Once you understand The Big Picture CMA’s core logic that I teach in the Master’s Program, it’s actually a much more sensible way to look at things. From your perspective and your clients’.
Why Argue About It?
One of the problems I have in using the price adjustment approach is that you open yourself up to an argument with your clients over every single line item.
I think the triple-car garage is worth this much.
“Are you serious? It’s worth way more than that!” 😡
Argue all you want. Right or wrong, you’ve already lost credibility with this client, and they’re probably not going to hire you.
This doesn’t mean that I don’t talk about the pros and cons of every comparable and every major feature. I do!
Just like a recipe, I show them all the ingredients, mix them together, and skillfully guide them towards the most logical starting list price.
And, I prepare them ahead of time to adjust quickly, in case the recipe doesn’t turn out as well as we hoped.
It’s all about using the right ingredients.
Learning The Big Picture CMA is one way to create a raving fan base and build a business that thrives on a never-ending stream of incoming referrals. This is the foundational doctrine of the Agent Skills Master’s Program.
This article was inspired by module #10 – The Big Picture CMA – part of the Agent Skills Master’s Program.
In ‘The Big Picture CMA,’ I explain step-by-step how to use the Criteria Manipulation Approach (CMA) to quickly determine the correct price for any property, efficiently and with full agreement from your sellers.
Here’s another article inspired by the same module: The Target Buyer.