Quantifying Overpricing

I love MLS.

Say what you want to about the somewhat clunky interface and the occasional fine for a nit-picky rule violation, but MLS is an absolute treasure trove of information.

Our MLS (CVRMLS) not only operates in real-time, it contains curated data that dates back over a decade. When combined with the public tax records and a host of other features, it forms one of the most envious proprietary backbones of any industry this side of Wall Street. 

When you can look across the table and tell a client that research dictates a certain strategy, it resonates.

Along with letting us know what is available, MLS allows us to see trends, seasonality, supply and demand, gluts, appreciation, and even efficiencies –– and with even the smallest amount of creativity, we can concoct new metrics that offer unbelievably valuable insight to everyone involved in our industry.  

Now more than ever, everyone needs guidance when it comes to the housing market –– and that spells opportunity for us all.

The Disrupted Disruptors

Some of you may have read our last article about how the so-called ‘disruptors’ are not faring well in a shifting market. The supposed visionaries are laying off staff, furloughing agents, and pulling back on investment.

Because, as it turns out, they (the Disrupters) don’t know anything more than we do.

So despite access to all available information and rooms full of Ph.D.’s to analyze it, COVID caught them in the same way it caught everyone else –– absolutely flat-footed.

Why? Because, as it turns out, they don’t know anything more than we do.

Let that sink in for a minute –– despite all of the resources at their disposal, they don’t know anything more than we do.

Download and Demonstrate

Their model’s failure spells opportunity for the agent community to once again seize control of the narrative and offer the insight that is required to navigate a time like the one we are in.

At the end of the day, getting paid for what you know is far more lucrative than getting paid for what you do. Act accordingly.

So back to our MLS –– let’s examine ways we can use our data to provide real and valuable insight to our client base –– insight that the supposed Disrupters do not.

How do we use data to our advantage? By rolling up our sleeves, downloading some information, and doing some custom research on our own market –– like this.

Study 1 –– Quantifying Overpricing

Do you want to be able to prove the financial danger of overpricing a listing to a client? Well here is how.

(For this exercise, I pulled all of the 4 bedroom sales from Zone 22 and 34 between $250k and $450K in 2019. Per MLS, there were 603 records.)

First, you have to create a custom download under the [ My Matrix –– > Settings –– > Custom Exports ] tab that captures the following fields:

  • Original List Price
  • List Price
  • Sales Price

See the series of screenshots below for how-to create a custom download.


Second, once you download the information in spreadsheet form, you have to create a few new columns in your spreadsheet where you do some rudimentary calculations.

Here are the ones required for this analysis:

  • List Price – Original List Price = PRICE REDUCTION 
    • Wherever PRICE REDUCTION is negative, it means that a seller was forced to reduce the price of their home in order to secure a contract
    • If PRICE REDUCTION = 0, then no price drop was required
  • Sales Price – List Price = SELLER DISCOUNT
    • Wherever the SELLER DISCOUNT is negative, it means the seller accepted less than a full-price contract
    • Wherever the SELLER DISCOUNT is positive, it implies the seller received more than one offer and was able to leverage the multiple offers into a higher price for the home
  • Seller Discount / Sales Price = SELLER DISCOUNT %
    • SELLER DISCOUNT % converts the actual SELLER DISCOUNT into a percentage so you can apply it to your seller’s specific home

Third, once you have created the fields, then all you have to do is sort and count the results:

  • 26% of the time a seller was able to create a bidding war without a price reduction 
    • The median value of the bidding war was $5,000
    • The largest bidding war was $31,000
    • The largest bidding war (on a percentage basis) was 10%
  • 5.3% of the time a seller was able to create a bidding war after a price reduction 
    • The median value of the bidding war was $3,500 
    • The largest bidding war was $10,500
    • The largest bidding war (on a percentage basis) was 3.3%

Summarize and Interpret

So according to this dataset:

  • if you price your house correctly (or even slightly under), the market will correct the pricing up to 10% OVER THE ASKING PRICE.
  • if you price the home above what the market will allow and are forced to drop the price, then the market will only correct up to 3% –– and that only happens in 5% of the cases.

Now, I fully recognize that pricing and strategy are situation-specific and that motivations vary –– but being able to quantify the financial impact of overpricing is huuuuuuge …

Oh, and by the way, I think that from start to finish, that exercise took me about 15 minutes.

Now is the Time

Insight and advice are the real reasons we do what we do, not just open doors and meet inspectors.

Right here, right now!

So think about what we just did –– with relatively little effort and using readily available information, we were able to shine some pretty serious light on one of real estate’s most common seller mistakes.

When you can look across the table and tell a client definitively that research dictates a certain strategy and carries with it a specific monetary outcome, it resonates.

Other Metrics

While examining the dangers of overpricing is one thing, there are countless other things we can study.

Sometimes they are relatively simple to compute, other times they are more complex –– but they have been utilized by everyone we have ever presented them to.

Here are a few others we have created to help our clients make better decisions:

  • how much can a developer charge for new homes in historic neighborhoods
  • how many homes transfer off-market
  • how much the expected sale price drops each day a home is on the market
  • what is the optimal size and price of homes on infill lots
  • how much value is destroyed when a condo becomes non-warrantable

(And if you want us to study something for you, let us know, and we will give it a try!)

Sorry, but I have yet to see a Disrupter offer anything close to that type of analysis. When you are able to provide real custom insight, your clients are far more likely to accept your version of the truth instead of Realtor.com’s or CNN’s.

At the end of the day, getting paid for what you know is far more lucrative than getting paid for what you do.

Act accordingly.