Factors to Consider When Pricing a Home For Sale
Pricing a home in a way that will encourage a timely sale is quite challenging for home sellers, and often for Realtors. There are numerous studies that indicate the longer a home remains on the market, the less money it will fetch when it finally does sell. Finding yourself with a home that won’t sell because you priced it too high is the last thing you want to happen, which is why it is so important to price it correctly at the start. In fact pricing a home correctly is the number one factor in getting it sold in a timely fashion for the most money possible.
Remember, buyers have access to a considerable amount of information about your home. With this information in hand, it is unlikely that they will be taken in by a price that is above market value. They will also be able to see how long the home has remained on the market, and they may be prone to avoid the home the longer it remains unsold. The days of information only being available to real estate agents is long gone. Home buyers today are armed to the tooth with information. A serious buyer understands when they see a good deal as much as an unrealistic seller who has pipe dreams about what their home is worth.
Many sellers unfortunately are still under the impression that pricing a home higher leads to a higher sale price. Sorry guys but this in NOT the case! Study after study indicates that homes priced correctly from day one end up getting more money than those that have to reduce their price.
A good real estate agent understands a sellers dilemma of not wanting to leave money on the table. This is why it is crucial to understand the factors to consider when pricing a home for sale right from day one. Use these data points wisely and you will be able to price your home where it should be without worrying your home could have fetched thousands of dollars more. Below are five considerations when pricing your home you should be familiar with.
5 Factors To Look At When Pricing Your Home
Condition of the Market – If you are considering selling your home, you have probably been paying some attention to the real estate market in your area. Generally speaking, the market has been improving for some time now. However, there have been some dips along the way, and there are likely to be more dips as time goes on. If you happen to be selling during a slowdown, you will need to price more competitively if you want to move the house, regardless of the market’s long-term recovery. You could always wait it out for things to improve, but if they don’t improve, you are left pricing your home even lower than you would have at the outset.
Comparative Sold Properties – Looking at recently sold properties that are in your area and similar to your property is one of the primary ways to price a home. In fact this is the number one means of how a real estate agent figures out market value. The search area you choose will usually be based on the population density of your area. If your home is in a densely populated city, you may only search within a mile of your home’s location for recently sold homes. If you live in the countryside, you may have to search a radius of several miles. Make no mistake about it what similar homes are selling for in your area is the most important factor in determining market value of real estate.
Under Agreement Date of Sold Properties – A home’s selling price is much more relevant to your sales situation if the market was similar at the time it was sold. This is a pricing factor that is often overlooked by both homeowners and real estate agents alike. You need to look at the date the offer was made on the comparable properties and determine if that sale occurred in a similar market, or if there were differences.
If the market was less competitive at the time the comparable home sold than it is now, you may not be able to price as high and still get a good response. On the other hand, if the market was more competitive, with numerous similar homes for sale, then you may actually be able to ask for more money now. This is especially true in real estate markets where inventory is exceptionally low. Understanding the difference in markets during different time periods is one area where having a Realtor who knows the local market inside and out really helps.
Homes Currently Under Agreement – homes that are currently under agreement is an important factor to consider when pricing a home for sale because it gives you a snap shot of what is occurring right now in the market. The only problem with looking at inventory under contract is we don’t know what the property sold for until it actually closes. It is against the code of ethics for a Realtor to reveal the sale price of a home without the sellers express permission to do so. You can however make an educated guess based on how quickly the home went under contract. If it went very fast the chances are greater that the home is under agreement for close to if not the asking price.
Current Inventory – You want to look at the current home inventory in your area to get a feel for how competitive the market is at the moment. If there is a huge glut of houses right now that are similar to yours, you are in a competitive market and will need to price more aggressively to stand out. If there are less homes available for sale, then you may be able to price a little higher because so many people are looking to buy. Just remember, you want your home to stand out from the other homes currently available.
Comparative Active Properties – This goes along with looking at the overall home inventory in your area. You want to analyze all the other properties that are also for sale while you are selling. The homes that are currently for sale have already gone through the same process you are going through, and the prices they sit at can give you an idea of how to price yours competitively. Many owners are tempted to price just a little higher than the competition, imagining that their homes are special and will fetch a higher price. Most often this is not the case. Pricing higher than comparable homes usually leads to the house sitting and not selling, which in turn leads to the home becoming less valuable in the eyes of the buying public.
It cannot be emphasized enough that what other homeowners think their home is worth is the least important factor in determining the market value of YOUR home. In other words you don’t want to hang your hat on your neighbors inflated viewpoint of their property.
Additionally the price of your neighbors home can drop at a moments notice. If you craft your pricing based upon your neighbors, where will that leave you once they reduce the price? If you are thinking you will need to adjust as well, then you are correct. The problem is you already made a huge mistake basing your own price on something that has not sold. Market value is always determined by what has SOLD, not what’s for sale. A homeowner looking at what their neighbors property is listed at is often a reason given for pricing a home in a certain manner. This is one of many lame reasons sellers give for overpricing their home. Don’t be one of them!
How Mistakes Are Made in Pricing a Home
Looking at an inaccurate Zillow estimate of value – it is funny how some homeowners will look at a database projecting the worth of millions of homes around the country and somehow put stock in this being the actual value of their home. Of course this rarely happens when Zillow says the home is worth $50,000 less than the actual value. This is when a seller will proudly proclaim Zillow is out of their mind. Turn it the other way around and some sellers will think a Zillow is a super computer similar to the ones NASA uses to track lunar vehicles. Sometimes sellers see and believe what they want to even when it is too good to be true.
Assessed Value – The town or city you reside in will have an assessed value on your property. This value is how they figure out their tax structure. Assessed values however, are nothing more than a measuring stick to collect an appropriate amount of taxes from those that reside in the community. In other words how much does the town need to operate properly. The official nature of this may encourage you to rely on the assessed value of your home for pricing purposes, which is almost always a big mistake. Assessed values almost always have no correlation to current market value. One of the biggest problems with the assessed value is that it is often not current. Municipalities will usually assess value once ever 1-3 years. The market can change substantially in a six month period, much less a year. Even some not so skilled real estate agents will fall for this one.
Refinancing appraisal – the refinance appraisal is another means of valuation that a lot of sellers like to hang their hat on especially when it benefits them to do so. The only problem is unless this re-finance appraisal was very recent it may be meaningless. More importantly, re-finance appraisals can be tricky, especially when they are done for getting a new mortgage. The dirty little secret here is that those giving you the loan want the appraisal to work – within reason of course. Banks and mortgage companies make money by writing loans. Each time you refinance your property the lender puts more money in their pocket. There is a little more leeway when it comes to valuations on a refinance. The vast majority of the time the appraisal you receive will not be conservative unless the real estate market has been dropping steadily. In other words a re-finance appraisal can be generous when it comes to the market value.
Listening to an unskilled or unscrupulous agent – this unfortunately happens all to frequently in real estate sales. We all want to believe our home is better than the next guy who sold down the street. In fact we often mentally calculate the reasons why, even though they might not be valid reasons at all. There are some real estate agents that will do anything they can to land a listing. If they know you are interviewing multiple Realtors the chances will go up that inflating the value of your home could happen. In real estate circles this is known as “buying a listing.” Agents that don’t have much business or are not skilled at landing a listing otherwise will tell a seller what they want to hear in hopes of getting the business. Real Estate agents that mislead on market value are not that uncommon. It doesn’t take a genius to see how many listings that get reduced on a daily basis to know there is some Tom Foolery going on.
These are just a few of the ways real estate gets priced incorrectly. You can see a few more by reading the article referenced.
Adjusting Your Price Accordingly
You may look at all this information, price your home, put it on the market, and then get a lackluster response. If your home sits for a month or more with few offers being made, or no offers at all, you know you need to adjust your price quickly to avoid your home developing a negative reputation among buyers. Even the best real estate agents will sometimes price a home too high, so don’t feel too bad about it.
Just be willing to adjust if you need to adjust. Knowing when to adjust your homes asking price is a key consideration in getting it sold. Too many sellers want to hold on to their high prices even when they are obviously not attracting buyers.
Lower your price, let buyers know, and see what happens. You will know when you have hit the sweet spot, as offers will start coming in that look promising. Few things feel better than being buried in offers to buy your home. Use the above information to price your home competitively, and enjoy the easy selling process that follows.
Other Helpful Home Pricing Articles
Real Estate pricing mistakes that need to be avoided via Rochester Real Estate Blog.
Is your home priced like the game show the price is right via Imagine Your House.
How to sell your home for top dollar by pricing it correctly via Selling Warner Robbins.
Use these additional helpful articles on pricing a home properly to get your place priced as it should be. Always keep in mind that the #1 factor in selling a home is price. This is something you control.