The Written Market Analysis for the Listing File

A list price that an agent can explain in conversation and a list price that the office can support on paper are two different things, and the difference is discovered at the moments when the paper is what is available: when the seller’s attorney asks how the price was set, when the seller asks six weeks in why the showings have not produced a contract, when a listing expires and the seller asks what went wrong, or when a complaint is filed and the file is what answers it. The office’s practice is therefore to place a written market analysis in each listing file, in a set form, before the listing goes live. This lesson sets out what the analysis contains and what each part requires.

One document, five parts

The written market analysis is a short document, usually three to five pages including its tables, that records the reasoning behind the price range and the list price recommendation. It is not the presentation the seller sees, although the seller’s presentation is drawn from it. It is the office’s record, written so that a person who was not in the room can follow the reasoning from the subject to the recommendation. The office’s template fixes its five parts in order, and each part answers one question.

Part one: the market area and its support

The first part states where the subject competes. It names the competitive market area in terms a reader can locate, streets, subdivision, or the area between named boundaries, and it states the boundaries and why they are boundaries: a highway, a river, a change in housing type or lot pattern, a change in price tier. For a condominium it names the complex and, where the complex is phased, the phase. For a waterfront property it names the water body, the shore and the form of access.

The support follows. The analysis states the evidence that the area was drawn where the buyer looks: the recent sales at the edges sell in the same tier and at similar marketing times as the sales at the center, and a sale just outside the boundary sells in a different one. Where the search extended beyond the area, in time or in geography, the part records each step, its result and its reason, and where a sale came from another town, it states why no in-town sale of the subject’s kind served, which town each sale came from and why it was chosen, and how the differences between the towns, including any local historic district, were taken into account. This part comes first, because every later part depends on it.

Part two: supply, demand and absorption for the segment

The second part defines the segment, in the terms the office uses, property type, size band, price tier, condition and area, and reports its figures: the count of actives, the count of pendings, the closings over the trailing six and twelve months, the absorption rate and the months of inventory. The town’s figures appear on the next line for comparison, and where the two diverge the divergence is explained in a sentence. The segment has to be the subject’s and not a convenient one, and the arithmetic has to hold.

Part three: trend indicators

The third part reports the direction. The new pendings entered per month for the past three months, their days to contract and the share reduced before contract, the share of actives with a price reduction, the days on market of the current actives, the closed median, the sale-to-list ratio of the closed sales and the days on market of the closed sales, each compared with the same period a year earlier. The part ends with a one-sentence conclusion about direction, rising, flat or softening, and states which indicators support it. Where an upward or downward time adjustment is to be applied to the comparables, this is the part that supports it; where the leading indicators have turned, this is the part that explains why no upward adjustment is made.

Part four: the comparable pool with reasons

The fourth part lists the primary sales and the support separately. Each primary sale carries its address, closing date, sale price, the selection criteria it meets, the verification performed on the sale, and a sentence stating why the subject’s buyer would have purchased it instead. Each support item carries its kind, active, pending, expired, outside the area or older, and a sentence stating what it shows. Each closed sale that met the search criteria and was set aside carries a reason. The reasons carry more weight than the addresses: a sale that is on the list because of the price it supports has a reason that reads differently from a sale that is on the list because it competed.

Part five: the pricing position

The fifth part states the range the primary sales produced, the position within the range chosen and why, in terms of the segment’s condition and direction, and the list price recommendation. It states the two checkpoint dates at which the price will be reviewed, at roughly half the segment’s median time to contract and at the median itself, and it records what the seller was shown and the price the seller chose, which is the seller’s decision and may differ from the recommendation. With the first four parts behind it, this part lets a reader follow the reasoning to the number rather than see only the number.

What the document does afterward

The written analysis exists for three readers: the seller, the office and the file. The seller’s presentation is drawn from it, and when the seller asks a question after the listing is live, about the house across the road, about the town’s figures, about a reduction, the answer is already written and is the same answer the office gave at the outset. The analysis is the first page opened at each checkpoint and when a listing expires, because it states what was expected and permits the office to see where the market departed from the expectation. And it is what remains in the file after the licensee and the seller have moved on, so that a person who was never in the room, the seller’s attorney, a successor broker, a regulator answering a complaint, can follow the reasoning from the subject to the recommendation. The template’s cover line states the document’s purpose in those terms: a comparative market analysis prepared by a licensee for the purpose of listing the property, and not an appraisal.

Application

A first draft of the written analysis for a 2,100-square-foot colonial is checked against the template before the listing goes live. Part one names the market area as “the north side” and gives no boundaries and no support. Part two reports the town’s inventory and omits the segment. Part three reports the closed median’s year-over-year change and nothing else. Part four lists three sales with addresses and prices and no reasons; one of them is an active listing. Part five states a recommendation of $584,900 with no range, no position and no checkpoint dates.

The draft is not ready for the file, and each part is reworked against the template. The revised analysis, two days later, names the area as the streets between the state road and the reservoir, with two edge sales and one just-outside sale as support; reports the segment at 19 actives, 5 pendings and 4.2 months of inventory against the town’s 2.6; reports new pendings, their days to contract, reductions and the sale-to-list ratio of the closed sales for three months with the direction called flat; lists three closed primary sales with reasons and verification, the active moved to support, and one set-aside sale with a reason; and states a range of $555,000 to $585,000, a position in the upper-middle of the range because the segment’s recent closed sales are at or near list and its pendings are reaching a contract quickly with few reductions, a recommendation of $574,900, and checkpoints at day 10 and day 21, from the segment’s 21-day median time to contract. It goes into the file. The seller’s presentation is drawn from it that afternoon, and when the listing reaches its second checkpoint without a contract the office opens the analysis rather than an argument.

Summary

The practice this course teaches is a written market analysis in each listing file before the listing goes live, in five parts: the market area with its support, the segment’s supply, demand and absorption, the trend indicators with a direction conclusion, the comparable pool with a reason for every sale used and set aside, and the pricing position with its range, recommendation and checkpoint dates. The market area comes first because every later part depends on it, and the reasons in the comparable pool carry more weight than the addresses. The document is what the seller’s presentation is drawn from, what the office opens at each checkpoint and when a listing expires, and what answers when a complaint asks how the price was set.