Does it help appraisers when agents increase the pending price in MLS for the subject property? In other words, if a house was listed at $400,000, but gets into contract at $415,000, does it help if the pending price is changed to $415,000 in MLS? This might seem like a silly topic, but I get asked this question all the time, and it seems like many believe this makes a difference for value. Here’s my opinion, and I welcome your two cents also.
Quick Answer: First off, sometimes agents think appraisers only look at the pending price, but appraisers make it a point to view the entire listing history. If you didn’t know, the Fannie Mae appraisal form actually asks appraisers to input the complete pricing history of the subject property into the appraisal. The appraisal report therefore records the original list price, any price changes, and the pending price. So it’s not like the appraiser or lender is blind to the fact the subject property was originally listed for less and is now in contract for more. In short, upping the list price for the subject property doesn’t help the appraisal come in higher or do anything for value. We have to remember the proof of value is found in the comps instead of whether the list price in MLS was increased or not for the subject property. However, on a different but related note it can be useful when appraisers are choosing comps and they see other pendings in the neighborhood getting into contract at higher levels. After all, pending sales showing higher prices might help us see the market is increasing or even help us make upward time adjustments. So while this practice of changing the list price in MLS for the subject property doesn’t do anything for value, in my mind it can be useful when looking at other pending sales in the neighborhood to see if everything is getting bid up or in contract at higher levels.
Three questions:
- What is the goal of this practice?
- If this practice is not done when the property is in contract for less, why should it be done when the property is in contract for more?
- If this happens in mass could it screw up data in any way?
I hope this was interesting or helpful.
Questions: What is your opinion on this practice? Is it a good idea or not? I’d love to hear your take.
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Very interesting post Ryan. I’ve never been asked about this practice in my market or seen it happen. Maybe the MLS does not allow it? I will have to check into it. However, it highlights the importance of the listing history. In our office, we study the listing history of the subject and comparable sales carefully and we learn a lot from it or it helps us ask better questions when interviewing agents about the sale.
I don’t know for sure if MLS did not allow this in the past, but all of the sudden over this last year it has started to happen more and more. It’s become kind of a topic and thing for whatever reason. In my office visits I am finding this question comes up quite frequently. After an agent asked me about it again via email last week, I figured I’d write about it. I think the gist I get from many conversations is that this is viewed as a way to get a higher appraisal, which I don’t think is accurate.
I agree with you about the importance of the listing history and studying it. Sometimes the history tells a compelling story of value. Or other times we see a property listed at $300,000 for 100 days (far too long at this price range), but then the list price is changed to $309,000 and it closes at that level. In a situation like this without looking at concessions, I would guess first that the price was inflated to give 3% back to the buyer. But I cannot assume, which is why it’s important to ask the agents involved in the transaction. Most of all, I cannot blindly accept the closed sale at $309,000 if the price without knowing the story behind the sale and why it closed 3% higher than other properties.
I don’t see any downside to it if you’re raising the price, as it helps to inform other agents in the area what properties are pending for and what kind of offers are being received, which helps them better collect data to obtain comps and price properties.
As for appraisers, I think it should have zero influence. You’re going to care more about what the offer is. The offer is the authority, not what you change the price to in the MLS, and you’d see that anyways. And with lots of sellers intentionally listing properties low to gain added attention the asking price really shouldn’t matter anyways in terms of the appraisal.
Now, if you were to lower the price because you got an offer lower than ask you’d be putting yourself in a terrible position to negotiate later, and kind of negates the whole purpose of raising it when you get a higher one to provide more info to agents pulling comps, making offers and pricing similar properties.
Overall, I think it’s a silly practice to do when you’re pending. Just wait until you come back on the market and do it then if you need to.
Thanks Wes. I appreciate your take. I think what you said about informing agents is key. A broker friend emailed me today saying he likes to do this as a sign to other agents as to what sort of price range they might need to make an offer on in case the deal falls apart. From my perspective I only get asked about this relating to appraisals, so I only hear the idea that this might matter for value (it doesn’t as you said). I get the part about communicating with agents.
When I get asked about this in an office because this could help appraisers, I mention the idea of lowering the price when it is coming in less. Haha. That’s never going to happen (for so many reasons).
This has been happening in our MLS and I think it is WRONG. It totally screws up statistics. If it sold for over list price, it should show as such, but if the price is changed, than statistics show it sold AT list price, which does not reflect an accurate picture. On the whole market, it may not show up as much, but when we do our micro market such as in the 1004MC then changing of prices will definitely be reflected, which hurts more than it helps. As mentioned, if you aren’t going to change the price when a lower price is accepted, why change for a higher. Legally I think this is wrong as well. List price is List price, Sales price is sales price. The two are not interchangable.
Thank you so much Janet. I appreciate you. I share your concern about the integrity of data. I think we rely on statistics and we really want to be careful that our stats are as accurate as possible and reflect the market as much as possible. Granted, one pending here and there won’t sway the stats, but if this happened in mass it could potentially change the way the current market looks on paper (by looking at the list to pending price ratio). I’ve had a number of emails today from local brokers who do not agree with the practice. I don’t know how this got started, but one broker suggested it was maybe someone who taught a class and said it was a good idea…. Not sure, but it’s here, and it’s a good idea to think through things as well as know how the numbers are being compiled so we can think through their legitimacy (and know how they might be shaped or skewed too).
Thanks again Janet.
Janet, I couldn’t agree with you more! Changing the list price changes the stats! Last year, I had an appraiser tell me to do it! Can’t remember who it was but I told her that I had an issue with doing it because it changes the data integrity as Ryan pointed out.
Thanks for tackling this topic, Ryan! Also appreciate the professional discussion. Have wondered about this practice. Personally, even if allowed, I probably will not do it. I will continue to make the phone calls directly to an agent, as I usually do, if I want more detailed info about a Pending comp for my sellers or an appraiser. Keeps data real.
Thanks so much Julie. I think there is definitely discussion to be had here. I first started to really notice this phenomenon around the time I wrote this post in 2017, but it’s really surfaced quite a bit in conversation lately, which is why I posted it on my social media today.
Just noticed this was an old blog post : ). Though I have seen this practice seemingly used recently and have been wondering about this topic 3+ years later.
Thanks. Some topics have a comeback and this is one of them.
Just found this blog post and curious about your take on using “pending” to drive prices and appraisals on other houses.
There are 4 houses currently listed as for sale in my neighborhood.
House 1 is owned by an actual neighbor. It was listed for a slightly high $370/sq ft in November, lowered to a more reasonable $350/sq ft in December and went pending in January. Its a big house at 3700sq ft so its a 1,295,000 sale but no real issues there.
Houses 2-4 however are all owned by the same LLC and are rentals.
House 2 was listed for an astronomical $450/sq ft in November (the LLC just bought the house in May for $350/sq ft and I know they didn’t put any work into other than painting so no way it actually warrants the $100/sq ft increase). Its a mid sized house at 2600 sq ft and a 1,195,000 list but it sat on the market and I was considering putting a more reasonable offer in when it went pending on January 22 at the $450/sq ft price but here’s where things get fishy to me…
House 3 is a smaller 1800 sq ft home that was listed on January 19 for $795k or $440/sq ft and went pending on January 21 at list.
House 4 is also a smaller 1800sq ft home that was listed on January 16 for $785k or $435/sq ft and is still on the market.
House 3 and 4 are basically the same house. Its the same floor plan and they are right next to each other though admittedly, House 3 has a 2 car garage instead of a 1 car and it has a second floor porch area and of course there are differences in the interior styling which would make up the $10k difference. Still I’m looking at this going there’s no way Houses 2 and 3 actually sold for $450/sq ft… Though admittedly its only been a month since they went pending so there’s still time for the deal to close but I’m thinking they’re trying to manipulate the market after house 2 failed to be a quick flip and make it look like house 3 is a good deal and it seems telling to me that house 3 is also still on the market.
Incidentally, house 3 and 4 are the same floor plan to mine. I have the 2 car garage of house 3 but not the 2nd floor porch. My lot is also the “middle” tier lot for the neighborhood, its more desirable than some as it has more privacy but not as desirable as the lots of all 4 houses recently listed. I was talking with my realtor about listing my house when I first started entertaining trying to put an offer in on and we were thinking $350-375/sq ft would be a more realistic number for house 2 to sell at and were talking about listing my house for $330-345/sq ft. All 5 houses are on the same street, built by the same builder and have similar curb appeal. Interiorwise, I’ve only been in 4 of the 5 houses but house 1 had the least amount of work and modernization needed with house 3 not far behind and my house not far behind that and based on the pictures house 4 is on par with mine. House 2 needed the most work.
I mean if I realistically thought I could get even close to $400/sq ft, I would probably consider selling even without having a new place lined up and without being able to buy house 2 as I bought the place for $250/sq ft only 20 months ago and I’m not particularly tied to the area.
All 3 houses are listed through the same real estate agent.
Hi Tony. Thanks for reaching out. It’s hard to speak definitively here, but here are a few thoughts. First, the price per sq ft range can vary drastically in a neighborhood. The truth is smaller homes tend to have a higher price per sq ft also in light of the law of diminishing returns. I wrote a blog post about this in case it’s useful. But beyond just size, the level of upgrades, view, lot size, condition, etc… can all change price per sq ft quite a bit. This is why I’m careful about only looking at price per sq ft. In my mind I want to check it out as a metric, but at the end of the day I want to ask what similar homes have actually sold for (comps). https://sacramentoappraisalblog.com/2016/04/18/starbucks-cups-and-price-per-sq-ft/
We see the market in the pendings. Sales are like historical artifacts that tell us what the market used to be like when these sales got into contract probably 30-90 days ago. What is the market like right now? We’re going to see that in the pending contracts and the listings. This is where we’re going to give pending contracts strong weight. However, this does not mean we’re going to give them blind weight. There is a huge difference between the two.
No matter what, I find we have to weigh the sales and the pendings. Some properties, whether pendings (or even sales), are going to sell for too little or too much, so they’re not really indicators of value. In an increasing market we begin seeing pending contracts at higher levels. In short, we don’t have to wait until these pendings close to recognize the market is willing to pay higher prices. Sometimes people say stuff like that, and I completely disagree. It doesn’t make sense to me. In a declining market we likely see the opposite where pending contracts are going lower.
Anyway, let me know if that makes sense. I’m glad to keep the conversation going.