The Realtor's Process of Pricing a Home

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The definition of the market value of real estate is: the value that a ready, willing and able buyer is willing to pay for a property that's been adequately marketed for an appropriate length of time, in an arms-length transaction with a ready, willing and able seller.

To break this down - a 'ready, willing and able buyer' is someone who has the means (money or credit) to purchase the property. 'Adequately marketed' means that the real estate must go through the same process (Multiple Listing Service) as other properties. The real estate should also be on the 'general' market for potential buyers for an average length of time.
'Arms-length transaction' allows for the true "market system" to function.
Last, the seller must have the desire to sell and have the ability to sell.

There are many factors which a real estate agent uses to recommend the "list price" for the real estate.

A Comparative Market Analysis is prepared on the property, which should include information about other real estate nearby which has comparable amenities and are of about the same size and condition, that are either on the market for sale, currently under contract, or have recently sold.

They take into account the absorption rate in that particular area. They address the average days on the market. They also consider the subsequent months' supply of the areas inventory. ( an estimation of how long it will take for all of the comparable properties to sell, or absorbed, based on how many properties are currently on the market, along with the monthly rate those properties have sold in the past few months.

The absorption rate's key factor is that it uses historical data to surmise the time it will take for the inventory to be absorbed. This is the reason agents and appraisers like to use comparable sales within the last six months, as older data may no longer be applicable to the current market.

After all the data has been analyzed, the most important information to gather is: Why is the seller selling? Has the seller been transferred to a new location and therefore must re-locate within a month? If the time frame does not allow for average marketing days, the market value of the real estate will be lower in order to get the property sold more quickly.

The first 30 days that real estate is placed on the market is the best time to generate excellent activity. The real estate must be priced competitively and in a condition which is above the competition on the first day that it goes on the market for full advantage of the intial market exposure to take place.