Using the OODA Loop, or the “Does It Make Sense?” Check, for Pricing Your Home

Valuing a home is a challenging activity, particularly in a fluctuating real estate market like Mesa, Arizona. Home sellers want to make as much on the sale as possible. There is, however, a catch. The only way a home seller is going to make any money at all is if the home actually sells.

The most common–and correct–way to value the property is to calculate worth based upon comparable sales in the area, then adjust for appropriate factors, including size, location within the community, view, amenities (pools, spas, etc.), and parking. This is the approach that appraisers use, called the market approach to valuation.

Most Mesa real estate agents, including myself, use the market approach to varying degrees to determine the listing price of the home. Once done, I then add a couple of additional steps—steps that are often overlooked by other listing agents.

The Does-it-make-sense Check

Once the list price has been determined using the market approach, which is based upon recent sales, pull up a list of comparable homes that are active on the market. I recommend pulling up all homes within a mile or two of the home seller’s property. With this list in hand, step 1 is to pencil in the home seller’s home with its calculated list price as ranked by price.

With the completed list on the table, we move on to step 2 where the home seller and I look at the list and ask the question, “Does the list price make sense?” In other words, would a prospective home buyer pay the price we’re asking compared to other available homes in the area?

If the home is over- or under-priced, the list will tend to show discrepancies. For example, if the seller’s 2,500 square foot home is listed at $375,000 and listed homes around it are 3,500 square feet listed at $370,000 and $380,000 (all else being equal), the seller’s home does not pass the does-it-make-sense check. All else being equal, why would a buyer purchase a 2,500 square foot home for the same price they can get a 3,500 square foot home? They wouldn’t.

If the home is properly priced, the list will show similarly-sized homes with similar characteristics on either side of the seller’s home.

Business and military strategy refer to this process as an OODA loop.

Observe – See what similar homes have sold for (Market approach)

Orient – Place the estimated value within the current market environment (Does-it-make-sense check, step 1)

Decide – Determine whether the estimated value actually makes sense (Does-it-make-sense check, step 2)

Act – Either adjust the list price based on the current market environment, where we reevaluate the first two steps, or we place the home on the market at the calculated list price

Using sound principles, home sellers can start out the sales process with realistic expectations from the market and avoid snake oil salesmen. More importantly, home sellers will be able to maximize their equity gain with minimum time on the real estate market.