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Realities of Real Estate: Understanding the competition

In preparation for listing a house, there is a lot of consideration given to what similar homes have sold for.

Knowing the “solds” is an important part of establishing an appropriate list price and determining market value. However, equally important to a successful sale is the ability to clearly define and understand the competition.

For the most part, selling homes doesn’t really differ that much from selling any other good or service. If you don’t have a full and objective assessment of the competitive framework, it’s not possible to effectively position a product in a manner that will motivate buyers.

This marketing principle applies to everything from a pack of chewing gum to waterfront estates. So, with respect to real estate, here’s how to size up the competition.

-Who is the competition? On the surface, it seems that defining the competition should be fairly simple. One would think it should include nearby homes similar to that of the seller’s.

But, what constitutes “similar” is in the eye of the beholder, and if it’s the eye of the seller, there’s often a less than objective point of view. We’re all guilty of thinking our house is the best one on the block. Consequently, it’s necessary to take a step back and be totally honest about what homes buyers will see as similar to yours.

If you think your place is capable of competing with $500,000 to $550,000 properties, and it’s really more of a $450,000 to $500,000 house, you’ll shoot yourself in the foot when you go on the market. If you try to play out of your league, buyers will see your property as “inferior” to the competition. This will severely damage your ability to sell, even if you make a series of price reductions.

The best way to determine how you stack up to the competition is to take a close look at those properties. Look at all the pictures on the Internet, take a drive-by, and have a frank discussion with your agent about how those homes compare to yours.

-How much competition is there? After you’ve defined the competition, the next step is to figure out how much of it is out there. This is critical, since it can have a substantial impact on how quickly you might sell and how aggressive you should be with the list price.

The basic laws of supply and demand dictate that when supply is high and demand is low, prices will fall or remain stagnant. Under these conditions, it’s probably not a good idea to push the envelope on pricing.

In today’s market, the overall inventory of homes available for sale is actually quite low. That’s good for sellers on a macro scale, but there can be isolated micro-markets, where there’s a glut of homes on the market.

So, when determining how much competition you have, don’t make assumptions. Select an appropriate geographic area, use a price range that’s plus or minus 10 percent of your anticipated price, and have your agent show you how many homes fit those criteria, as well as the rate of sale.

-How does your house compare to the competition? Once you get a handle of the quantity of competition, it helps to drill a bit deeper and assess the “quality” of your competition.

If you’re looking to sell fairly quickly, not only do you need to be priced well, your property will need to be near the top of the deck in terms of quality and features. It’s not all just about price. A home that has several sought-after features or a great lot can win out with the next buyer.

Conversely, if your property has a negative characteristic that can’t be changed (something like road noise), you’ll need to compensate with a lower price. Otherwise, you’ll remain uncompetitive, because these unchangeable features will always be a deal killer.

Also, when comparing your house to the competition, talk with your agent and make sure you have an accurate understanding of the relative value associated with different property features. An updated kitchen might add $75,000 in value; a pool usually adds nothing.

Plus, remember that you won’t get back everything something cost you. On average, a major kitchen remodel returns about 75 percent of the cost in your selling price.

-What do agents say about your competition? After your property has been shown several times, it’s helpful to meet with your agent and go over what buyers and their agents are saying. This will let you know if you’re in the ballpark of buyer expectations. If you’re not, you’ll need to quickly adjust the mix of price, presentation or positioning.

The combination of these three elements must be balanced to meet or exceed your competition, or you’ll always be on the losing end as buyers make the rounds.

It is especially important to listen to what the agents say. They’ve seen a lot of homes, and can quickly get to the root of your problem, if one exists.

Additionally, make sure your listing agent not only gets the topline feedback, urge them to talk to the buyer’s agents and dig deeper to fully understand why your house didn’t make the short list. For example, a buyer might say they thought the rooms were too small. But, when you talk to the buyer’s agent, their interpretation of that might be the need to de-clutter the house, and that’s something a seller can easily fix.

-How has the competition changed? It’s essential to realize that the competitive framework is constantly changing. New listings come to market, properties get sold and others are withdrawn, failing to ever sell. You might be sitting pretty one day, thinking the next buyer is yours, only to have the house down the street go on the market at a hot price.

Make sure your agent is constantly on top of how your local market is evolving, especially with respect to price changes on homes that you identify as your closest competition. You don’t want to be blindsided and lose a buyer because you weren’t keeping pace with other sellers who made the adjustments necessary to stay high on the list of best buys.

In sum, understanding the competition is a critical part getting your house sold. But, also remember, that unless you respond to competitive changes, all that understanding is for not.

Next week, we’ll go into further detail about how to beat the competition and retool your listing in a real estate market characterized by very fluid and uncertain times.

Bob and Donna McWilliams are practicing real estate agents in Maryland with more than 25 years of combined experience. Their email address is