Sunday, June 29, 2008

Why online auctions make sense for Realtors

In a "normal" market, the conventional method of using comparative market analysis to establish a listing price works reasonably well, despite the fact that everyone involved knows that the eventual selling price is typically somewhat less. Getting a property priced right can be a challenge, and how close the Realtor gets it to prospect's "opinion of value" is critical to how long it takes to actually get a sale. No matter how good the Realtor's guess is, it's still a guess. Even a formal, written appraisal is defined as an "opinion of value," a phrase that simply means a guess.

Consider the textbook definition of "market value." In simplified form, it is the highest price that a buyer is willing to pay in an open market. What does that remind you of? Of course, an auction. At auction, you don't need to guess at a listing price. You don't need to wonder if you got it too high or too low. The market will determine the eventual selling price, and competitive bidding drives that price upward to "fair market value."

Mankind has never developed a better method for setting "fair market value" than competitive bidding.

The key concept of any auction is "Sellers set the terms, buyers set the price."

Another key concept easy to overlook is the "time value of money." In other words, an accurate CMA assumes the likely "days-on-market" to achieve that anticipated selling price. Is it reasonable to assume that the selling price should be less if there was a way to sell it right away? Sure it is. It costs the Seller money to hold the property.

When's the best time to sell in any market, no matter whether it's trending up or down? As soon as possible after the Seller decides to sell!

Contributed by John Bickel

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