Set Your List PriceNow that we’ve covered how NOT to value your home, we can put all that information aside and focus on the things that really will determine the price of your home.
In the simplest terms, your home is worth what someone is willing to pay for it on any given day.
People often think pricing their home for sale is an exact science. In practice, pricing a home is very far from an exact science.
A realtor, certified bank appraiser, neighbor, friend, mother-in-law, may all give you pricing advice. At the end of the day, they really offer only educated or, in some cases, uneducated opinions.
Please understand that the value of your home, at any given time, will fall within a large, variable price range. If you accept this, you are much more likely to minimize the stress associated with selling a home and achieve a speedy sale.
So how do you determine the right price range for your home?
Educate yourself about your local market. One of the first things you should do is compare your home to other homes in your area that have recently sold and those that are currently on the market.
You are likely to be biased when comparing your house to others. This is normal and very important to keep in mind.
Your neighbors will also frequently suffer from this same inability to be objective about the current value of the neighborhood, so it is best to have a third party weigh in. A realtor can prepare a report of comparable properties, and you can do some legwork of your own too. Take a look on the Internet or by driving around town to learn about the features those other homes have or don’t have compared to yours.
- How many bedrooms do they have?
- How many bathrooms do they have?
- How big is their lot?
- Which neighborhood do you feel is more desirable?
- Are there any drawbacks to the homes you are comparing?
- What is the differential in the property tax assessments?
This process will allow you to get an objective sense of the other homes that you’ll be competing against.
The second thing that you can do is look at relevant market data. Let’s take the price band that you believe your home will most likely fall within, somewhere between $600,000 and $800,000, for example. Your next step is to find out how many homes sold in that price range in the past 12 months.
If, for example, there were 24 homes in that price band that sold during the past year, you’ll know that, on average, 2 homes in your price band sell per month.
Why is this important?
It helps you price your home competitively. Here’s how. If you look at the homes that are actively on the market, and you know that in the next month, most likely, only two of those will sell, you know that if you want your home to sell in the next month you will need to be one of the two best homes in that price band.
Your home will need to offer a better value than all of the other homes within that range to ensure that yours is one of the two that, according to data, will likely sell. Remember, best value isn’t the same as least expensive. Your list price should account for the specific features of your home relative to others that are for sale, as well as the overall competitive landscape.
Now, many people wonder, should they have an appraiser come over or should they talk to different realtors for a market analysis? That’s a very good question, and often times I recommend both. Realtors are on the front lines, taking buyers out on a daily basis, and they typically have a very good flavor for the other homes that are currently on the market - their attributes, what they’re worth, how they will be viewed by buyers in comparison to yours.
Typically, realtors do have a very good sense of what your home’s market value is. Many people find they like to interview more than one realtor, while others find that a real estate agent’s data combined with their own research can give them a thorough understanding of the market value.
I strongly advise that when you’re talking to a real estate agent in order to determine the price of your home, you first determine which realtor you feel most comfortable with.
Once you establish a rapport with your chosen realtor, you can then review the market data and define a pricing strategy together. This is a much better approach than interviewing three realtors and deciding to hire the one that gave you the highest price estimate.
Realtors often face a lot of pressure to come up with a high number just to make you happy and feed your ego. Ultimately, this may not be an accurate reflection of what your home is worth. Having inaccurate information and false hopes could lead you down an unpleasant emotional road that could be costly if you do list your home at too high a price.
Bank appraisers, by their nature, tend to look in the rear-view mirror when valuing property. They’re looking at what has sold and closed during the past three to six months. While that is valuable information, it may not reflect what’s happening in the market at the time you are selling your home.
Nonetheless, it will give you a sense of where your home will appraise should your buyers need to obtain a mortgage to make the purchase. Remember, if the agreed upon selling price is significantly greater than the appraisal value and your buyers aren’t paying cash for the home, they may not get the financing in order to close the deal. This could result in you relisting your home or renegotiating the price at the eleventh hour. In some cases, it may make sense to have both a realtor and a bank appraiser provide their assessments of your home’s value.
A final word of advice on setting your list price: don’t be greedy. The old expression, “pigs get slaughtered,” comes to mind and tends to be true when selling your home.
Data suggests that for every $10,000 over market value you price your home, in the end you’ll likely lose about $6,000 of what you could have achieved for your home in the first place.
Why is this so? If you overprice your home, and it sits on the market for 30 days or 60 days or 90 days, it will be viewed as stale inventory, or having something wrong with it.
Buyers who see a home sitting on the market month after month may not even look at it, because they assume there must be something wrong with it, or that it will be difficult for them to resell when that day arrives.
They may believe that the sellers aren’t realistic about the price of their home, and they don’t want to buy a home that’s sitting on the market, overpriced. This can lead buyers to believe that they have greater negotiating leverage over the price.
There’s usually a pattern of mistakes when it comes to homes that are priced too high, and it looks something like this ... The first mistake: the home is listed at too high of a price. The second mistake: sellers wait way too long before reducing the price. The third mistake: desperation results in a poor negotiating position and sellers end up getting slaughtered.
By the time the sellers acknowledge what they actually want and need to sell their home, and that they are willing to reduce the price, it has been on the market for too long, has become stale, and has earned a reputation as an undesirable house. When the price is finally lowered, the home is worth less than it would have been if it had been priced correctly when it first went on the market.
This is where an experienced real estate agent can really help, but only if sellers are willing to put emotion aside and price their home according to market data. Advising clients where in the price band to list a home so that the house attracts maximum buyer interest is one of the most important reasons to hire a realtor.
Hiring the right real estate agent, and deciding to rely on his or her expertise, will minimize costly mistakes. This will save you time and money, and reduce the overall stress related to selling your home.
WHEN PRICING YOUR HOME, AVOID THE
“WENS” MINDSET, DO YOUR HOMEWORK,
WORK WITH PROFESSIONALS THAT MIGHT
BE MORE OBJECTIVE ABOUT YOUR HOME
THAN YOU ARE, AND DON’T BE GREEDY.
If you would like a copy of Shannon's book Don't Give It Away: Maximize the Sales Price of Your Home By Discovering The Emotional Mistakes Every Home Seller Makes... and How to Avoid Them, click here.