{"id":3995,"date":"2008-08-19T11:01:42","date_gmt":"2008-08-19T18:01:42","guid":{"rendered":"http:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/?p=3995"},"modified":"2008-08-19T11:01:42","modified_gmt":"2008-08-19T18:01:42","slug":"pricing-analysis-is-greek-to-me","status":"publish","type":"post","link":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/3995\/pricing-analysis-is-greek-to-me\/","title":{"rendered":"Pricing Analysis is Greek to Me"},"content":{"rendered":"

I think most of us can agree that\u00a0real estate agent<\/em>, as a\u00a0profession, lacks\u00a0“street cred”.\u00a0 The reputation for our industry is not high and I say this\u00a0despite the reputable people I meet here and elsewhere.\u00a0 Two ways to effect a change in that perception are: raise the bar of competition and adopt a better model.\u00a0 Sometimes we can do both.<\/p>\n

In a recent post called It Takes More than Comps to Beat the Competition<\/a>, I introduced a pricing model based on\u00a0how assets are valued in the securities industry.\u00a0\u00a0As a former stock broker and options trader, I can tell you that the methods employed in the real estate world for valuing assets and advising clients are rudimentary.\u00a0 A more thorough understanding of what a property is worth and a framework for better understanding what\u00a0that\u00a0knowledge suggests would not only help us to do our job better, but it would separate those that use the tools from those that do not.\u00a0 Adopting a better model de facto<\/em> raises the bar of competition.<\/p>\n

A Quick Primer<\/strong>
\nFrom a securities standpoint, price is rarely the sole motivation behind a buy or sell.\u00a0\u00a0We are usually trading volatility or time or both.\u00a0 An asset’s value then, is affected by these two items.\u00a0 This is evident in real estate too.\u00a0 Good agents take these factors into account when they do comps, but we are generally lacking the common language and function for applying them.\u00a0 By adopting a better model, we gain these tools.<\/p>\n

Volatility<\/strong>
\nLet’s use\u00a0options as an example: an options contract is valued in relation to the underlying stock.\u00a0 This valuation is called its delta<\/strong>.\u00a0 On a scale of 1-100,\u00a0a delta of 100 means the options contract might as well be<\/em> stock.\u00a0 It is traded, hedged and valued as if it were the underlying stock.\u00a0\u00a0A delta of 20, on the other hand,\u00a0means the options contract is very unlikely to\u00a0approach the value of its underlying stock.\u00a0 It has only a 20 percent chance of holding value.\u00a0 I\u00a0would therefore trade, hedge and value it\u00a0quite differently.\u00a0\u00a0Now a\u00a0delta Read more<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

I think most of us can agree that\u00a0real estate agent, as a\u00a0profession, lacks\u00a0“street cred”.\u00a0 The reputation for our industry is not high and I say this\u00a0despite the reputable people I meet here and elsewhere.\u00a0 Two ways to effect a change in that perception are: raise the bar of competition and adopt a better model.\u00a0 Sometimes […]<\/p>\n","protected":false},"author":36,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_crdt_document":"","jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[5],"tags":[218],"class_list":{"0":"post-3995","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"hentry","6":"category-real-estate","7":"tag-add-new-tag","9":"no-featured-image"},"jetpack_featured_media_url":"","jetpack_sharing_enabled":true,"jetpack-related-posts":[{"id":1098,"url":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/1098\/money-geek-contest\/","url_meta":{"origin":3995,"position":0},"title":"Money-Geek Contest","author":"Brian Brady","date":"March 1, 2007","format":false,"excerpt":"As an would be Money-Geek, I hosted a little competition. The hounds represented. Michael Cook wrote an analysis of the pricing of real estate \"options\" dismissing a parallel to the Black-Sholes options pricing model in favor of the binomial pricing model (probablity analysis). VERY econo-geeky! I loved it! Greg Swann\u2026","rel":"","context":"In "Real Estate"","block_context":{"text":"Real Estate","link":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/category\/real-estate\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":95,"url":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/95\/its-not-a-buyers-market-its-a-procrastinators-market\/","url_meta":{"origin":3995,"position":1},"title":"“It’s not a buyer’s market, it’s a procrastinator’s market.”","author":"Greg Swann","date":"July 17, 2006","format":false,"excerpt":"Our friend Richard Riccelli sends this along from the Boston Globe:Home sellers are learning what any retailer, from Wal-Mart to the owner of the corner gas station, already knows: Low prices are one of the surest ways to beat the competition. Coldwell Banker Residential Brokerage, Massachusetts' largest real estate firm\u2026","rel":"","context":"In "Real Estate"","block_context":{"text":"Real Estate","link":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/category\/real-estate\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":8871,"url":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/8871\/what-if-the-real-estate-industry-didnt-control-the-real-estate-market\/","url_meta":{"origin":3995,"position":2},"title":"What If The Real Estate INDUSTRY Didn’t Control The Real Estate Market?","author":"Brian Brady","date":"June 10, 2009","format":false,"excerpt":"I have the heart of a trader.\u00a0 If you read Mortgage Rates Report, you know that I'm fascinated with the forces that make markets move up, down or not at all.\u00a0 One of the things I've noticed, since I started writing on Bloodhound Blog, is that the real estate industry\u2026","rel":"","context":"In "Disintermediation"","block_context":{"text":"Disintermediation","link":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/category\/disintermediation\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":2118,"url":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/2118\/my-hybrid-is-a-gas-guzzler\/","url_meta":{"origin":3995,"position":3},"title":"My Hybrid is a Gas Guzzler","author":"Kris Berg","date":"October 29, 2007","format":false,"excerpt":"The business of real estate sales is a business unlike any other. The Real Estate Hybrid is neither energy nor cost efficient. Ours does not fit neatly\u00a0under the Service Provider\u00a0heading nor do we have a product to sell in the traditional sense. What we do have, however, is\u00a0the goal universal\u2026","rel":"","context":"In "Real Estate"","block_context":{"text":"Real Estate","link":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/category\/real-estate\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":200,"url":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/200\/sellers-should-select-price-to-make-house-stand-out\/","url_meta":{"origin":3995,"position":4},"title":"Sellers should select price to make house stand out","author":"Greg Swann","date":"August 11, 2006","format":false,"excerpt":"Me, from today's Arizona Republic. (This is a more-permanent link.):As we've talked about before, when you put your house up for sale, you should price it to the market. The idea that you can fool a buyer into paying more than a home is worth is false. Buyers will come\u2026","rel":"","context":"In "Marketing"","block_context":{"text":"Marketing","link":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/category\/marketing\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":2214,"url":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/2214\/stifle-those-yawns-cyberhomes-is-coming-out-of-beta\/","url_meta":{"origin":3995,"position":5},"title":"Stifle those yawns: CyberHomes is coming out of beta","author":"Greg Swann","date":"November 12, 2007","format":false,"excerpt":"Q: Is there room in the Realty.bot business for a third major player? A: What business? Joel Burslem came to Phoenix last week, and I had a chance to spend a few hours with him before he flew back to Portland. Because I live and breathe real estate and because\u2026","rel":"","context":"In "Disintermediation"","block_context":{"text":"Disintermediation","link":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/category\/disintermediation\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]}],"_links":{"self":[{"href":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/wp-json\/wp\/v2\/posts\/3995","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/wp-json\/wp\/v2\/users\/36"}],"replies":[{"embeddable":true,"href":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/wp-json\/wp\/v2\/comments?post=3995"}],"version-history":[{"count":5,"href":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/wp-json\/wp\/v2\/posts\/3995\/revisions"}],"predecessor-version":[{"id":4004,"href":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/wp-json\/wp\/v2\/posts\/3995\/revisions\/4004"}],"wp:attachment":[{"href":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/wp-json\/wp\/v2\/media?parent=3995"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/wp-json\/wp\/v2\/categories?post=3995"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/wp-json\/wp\/v2\/tags?post=3995"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}