Price: The Best Opportunity or Costliest Mistake . . .
Pricing your home correctly is the most important decision you, and your real estate professional, will make in the process of selling your home. Homeowners typically have an inflated value of their home. Most of us do. There are sentimental attachments, the new home is determining what you need to get for your current home, you may need to sell at a certain price in order to cover your mortgage balance, and a host of other reasons. It is a good practice to keep your expectations in check and go through the process of correctly valuing your property.
We tell our clients to approach the pricing process by putting themselves in the position of buyers. We ask them to look at their own home as if they were considering buying it. If the sellers can remain objective, the process is simple and straightforward.
Looking at your home from the buyer’s side, you will critically examine all the features, improvements, deficits and benefits of the home. The best way to begin this process is to abandon any price leanings you may have. You are better served by doing the comparisons and arriving at a price based solely on the comparative process.
Some homes are simply over-improved. Homeowners may have put so much money into improvements that the market will not support a higher price, even if it is justifiable.
When a buyer and broker make an offer on a home, they will always have done a comparative market analysis in advance. They will have done their homework by evaluating the only “true” criteria. They use the prices of properties that have sold in the immediate area in the recent past. Once they have collected all the property information – they compare – and formulate an offer based on those comparisons. Sometimes criteria such as price-per-foot are used but most often it is an item by item comparison.
Buyers will not overpay. Sellers who lean toward overpricing often have an idea that the home will be a perfect fit for some family who love all the great features and will pay a higher price because the house is . . . just perfect. That rarely happens in our experience. If a home is overpriced, most buyers simply cross it off their list and never take a look.
Even if a home is sold for a higher-than-market value, it will still need to appraise for that value if the buyer is financing. If the home doesn’t appraise for the agreed price buyers can walk away – as they should.
We have sold homes at a premium to other comparable homes through the years. But really it is because there was a “perceived” premium. Our price may have looked too high, but we had all the supporting data through in-depth comparisons to get the deal done and have the home appraise at the higher value.
Your comparable evaluations must support your price. If your home is not superior to the other homes which have recently sold you likely will be unable to sell for a higher price than the compared properties.
Overpricing causes homes to languish on the MLS and most buyers will simply look elsewhere. If you must sell – you will start lowering your price incrementally until you get to a point that buyers respond. Unfortunately, most buyers will have already “passed” on your home and it won’t pop up in their searches. This downward spiral of pricing and diminishing numbers of buyers is the single most predictable effect of overpricing a property.
When new homes come on the market buyers will have alerts on their phones and computers. 95% of buyers use the internet to locate possible matches before they contact a broker. Searches are often setup to send buyers new listings as they come to market. Even if your home has been reduced to an attractive price, many buyers will have already “un-checked” your home in their search tool.
We have found that a correctly priced home has a very good chance of securing a willing buyer within the first few weeks. The deal won’t always come together, but there is usually a buyer who is willing. Inventories are dwindling and buyers are responding quickly to new opportunities. If your price represents fair value your home will be considered by the largest pool possible.
A side note – buyers who feel a fair price was negotiated will have a much better attitude moving through the sales process. Things tend to go smoothly. Buyers who feel that they overpaid and didn’t feel they were treated fairly will often make more demands after inspections and have objections to other aspects of the deal.
Here is what works …
Collect as much data as you can about the homes that have sold in your subdivision, neighborhood or general area. Put together a list of facts about your home for comparison. Then – setup a spreadsheet and begin listing attributes and deficits.
The types of information easily available to everyone is often enough to get the job done. Here are most of the items you will need to compare:
- Approximate size in square feet
- Approximate lot size in square feet
- Number of bedrooms and bathrooms
- Lot location– the good and the bad
- Basement and level of finishing
- Condition and quality of appliances
- Exterior features and yard size
- The condition and quality of the kitchen and baths
- General easily observable conditional factors: Roof, siding, yard, cleanliness, floor plan, mechanical age and condition and so on
By comparing a 5 or 6 similar SOLD properties, a fair value for your home should become obvious to you.
Make sure you stop by all the open-houses in your area to help you gain some perspective. Have your agent make appointments for you to see what is currently for sale. Check the competition … most of the buyers will as well.
Good luck with the pricing process. In a flat or declining market it is very important to get the home price correctly to expedite a sale. One thing to help ease the pain when you feel you are selling at a discount is that it is very likely that you will be buying a new home at a discount as well.