There’s no arguing with people about what their home is worth.
Last winter, I tried convincing a neighbor who has long wanted to move that he could sell his place for more than he owed on the mortgage. After every argument had failed, I told him there were 200 people on Redfin.com right now looking for a home like his, who’d be willing to pay his price. “Why not ask them?” he said.
Why not indeed!
Introducing Price Whisperer
Seven months later, Redfin is now releasing Price Whisperer, an online service for surveying active local buyers about the price you as a homeowner would hope to get for your place. We ask you for a few home photos, the number of bedrooms and bathrooms, the estimated square footage and your hoped-for price:
We start with an address, just so the website can estimate the number of active, local buyers we can survey about your price; we expect to average 200 – 300. A Redfin agent calls to confirm the other details, which we then send by email to those buyers, targeting folks who are looking for homes just like the one we’re asking about. The email asks each buyer if she would be interested in your home at your target price:
Folks who respond get first in line to tour the home if you decide to sell. Forty-eight hours later, you get a report on their responses, with a list of folks who want to see it in person:
As we gather more data, we’ll be able to correlate Price Whisperer responses to the ultimate sale price of each home, which should let us forecast more precisely the likelihood you’ll be able to get your desired price:
Come One, Come All!
We’re offering Price Whisperer to folks who have already decided to use a Redfin agent to list a home, and also to those who aren’t sure about listing their home at all; in any event, you’re never obligated to hire a Redfin agent.
This Is Only a Test
The Price-Whisperer email is a test and only a test. We won’t use it as a secret solicitation to sell the home. No matter how many buyers respond to the email, the owner is still more likely to get top dollar by putting out a sign and offering the home to the entire market. We are also governed by our membership in local Multiple Listing Services, cooperatives for sharing listing data between brokerages, which require brokers to show all bona fide listings to all buyers.
Show Me The Money!
Will Price Whisperer work? It mostly has so far. To get the kinks out, we sent Price-Whisperer emails for six home-owners to more than 1,200 home-buyers. More than half the recipients opened the emails, at a rate nearly triple what we typically see for email from Redfin. All of these owners were testing a price near the top of the market. Five of the six homes sold.
The pricing guidance we were able to provide was crucial. In the case of one Orange County house, the most recent nearby sales all involved a bank because the sellers were short on their mortgage debt. Our customers hoped to get a higher price for our traditional sale; we just didn’t know how much higher it could be.
The neighboring short sales had just sold for $660,000 – $675,000, but Redfin agent Angela Creech used Price Whisperer to email 248 local Redfin buyers to test a price of $695,000. Fifty-three percent of respondents said “yes” or “maybe” to paying that price. This gave us a basis for listing the home at $695,000; a week later the home was under contract for $701,000, within 1% of the listing price.
Why Not Just Test Your Price on the Market?
Of course, we could have just tested a price by putting that home on the market. The problem is that once we list the home, all the real estate websites track every day that it doesn’t sell. If you drop the price, most buyers never know it, as the traffic to a listing declines to a quarter of its first-week level.
The whole process can be a high-stakes guessing game, conducted for everyone to see, where you only find out you’re wrong after costing yourself tens of thousands of dollars.
By contrast, using Price Whisperer to experiment with a price before the home debuts is like finding out whether someone would date you without his ever knowing about it: you gather valuable market information at no cost.
The Big Picture
This is a big deal to us because it will help us sell our customers’ homes for more money and less risk. We’re focusing much of our 2013 software development on helping our listing customers because our listing business has grown 200% in the last year.
But we also think it’s a big deal for other reasons.
Pricing a home has been like Fermat’s Last Theorem for computer scientists; every other asset is already priced to the penny by a dozen shopping sites, but nobody agrees on how to value a house. We’ve relied so far on algorithms calculated by a computer that has never seen your house; or a comparative market analysis (CMA) based on sales from six months ago, of homes that rarely look like your home.
Most of all, we’ve relied on agents’ expertise, even though when an agent’s trying to win your business, the whole pricing conversation is a mess: you wonder if the agent is under-pricing your home to get an easy sale or over-pricing it just to beat out another listing agent. All of these approaches, from the algorithm to the CMA and the local agent, will all still be important to consumers.
But in an era of flash sales, crowd-sourcing, transparent markets and big data, it was only a matter of time before we just asked hundreds of buyers what they would pay. When you ask, the truth comes out. We can hardly wait to hear what the market has to say.
(Listing photo credit: Lucas on Location)