The single most important factor to consider when selling a house is the price. How much is your house worth in today's local real estate market?
If you are thinking that you should overprice your home and then aggressively negotiate, think again. Overpricing may be the biggest mistake you can make when selling your home. Overpricing leads to a longer listing time and lower selling price.
By overpricing you will miss the buyers that are truly in your price range. Those buyers may not even be aware that your home is available and that you will sell within their means. And, your home will not be attractive to the buyers in the higher price range. They are looking at homes that are nicer than yours . . . higher priced homes with more space, more amenities, and possibly a better neighborhood. So by overpricing, you put your home in a non-competitive position . . . too much money for the 'right' buyers to consider, and not measuring up to the buyers in the higher price range.
So what happens then?
The freshness of the home's appeal will quickly dwindle after the first several weeks of showings, and demand and interest will wane. After several weeks of no offers, you will need to reduce your price, perhaps several times, before you get an offer. Research proves that people who overprice their homes generally end up selling for 5% less than comparable homes that were priced correctly from the beginning.
On the other hand, homes priced at market value may receive multiple offers, and the competitive situation may possibly drive up the price. Under pricing will cause your home to sell fast, but possibly for less money than you would have received if priced at market value. It's important to price your home at its market value at the onset of the listing to receive the best price.
Pricing is all about supply and demand . . . part art and part science. This is how a professional real estate agent prices your home:
Analyze Comparable Listings and Sales
We look at all similar homes listed in the same neighborhood over the past six months or so. The list should contain homes within a 1/4 mile to a 1/2 mile and no further, unless there are only a handful of comparable properties in the general vicinity or the property is rural. We pay attention to neighborhood dividing lines and physical barriers such as major streets, freeways or railroads, and do not compare homes from the 'other side of the tracks'. Perceptions and desirability have value. We choose comparable properties with similar square footage, within 10% up or down from the subject property, if possible. We also consider homes of similar ages. One neighborhood might consist of homes built in the 1950s next door to another one built in 1980s. Values between the two will differ. We will compare apples to apples.
Analyze Sold Comparable Properties
We pull the history for expired and withdrawn listings to determine whether any were taken off the market and relisted. If so, we will add those days to the marketing time for these listings to arrive at an actual number of days on market. We compare original list price to final sales price to determine listing to selling price ratio. We also adjust pricing for lot size variances, amenities and upgrades.
Research Withdrawn & Expired Listings
We look for patterns as to why these homes did not sell and the common factors they share. We will also consider which brokerage had the listing: a company that ordinarily sells everything it lists or was it a brokerage that might not have marketed the home properly or has a history of overpricing. We think about how to prevent your home from becoming an expired listing.
Gather Information About Pending Sales
Since these are pending sales, the sales prices are unknown until the transactions close. However, we will make note of the days on market, which may have a direct bearing on how long it will take before you see an offer. We also examine the history of these listings to determine price reductions.
Look at Active Listings Competitively
We consider all other actively listed properties as competition for your home. To see what buyers will see, we will tour comparable active listings that we have not yet seen. At times we may ask you, as the homeowner, to tour some of the listings too so you have a good perspective of what buyers' experience will be. Ask yourself why a buyer would prefer your home over any of these and adjust your price accordingly.
Compare Square Foot Costs
Remember that after you receive an offer, the buyer's lender will order an appraisal, so it is very important to compare homes of similar square footage. Appraisers don't like to deviate more 25% and prefer to stay within 10% of net square footage computations. If your home is 2000 sq. ft., comparable homes are those sized 1800 to 2200 sq. ft.
Average square foot cost does not mean you can multiple your square footage by that number unless your home is average sized. The price per square foot rises as the size decreases and it decreases as the size increases, meaning larger homes have a smaller square foot cost and smaller homes have a larger square foot cost.
Set Your Price Based on Market Conditions
After all the data is collected, the next step is to analyze the data based on market conditions. For comparison purposes, let's say the last three comparable sales in your neighborhood were $150,000. In a buyer's market, your sales price might allow some wiggle room for negotiation but be strong enough (near the last comparable sale) to entice a buyer to tour your home. To sell in this market, you might need to price your home at $149,900, settling for $145,000.
In a seller's market, you might want to add 5% more to the last comparable sale. When there is little inventory and many buyers, you can ask more than the last comparable sale and likely get it. So that $150,000 home might sell at $157,500 or more.
In a balanced or neutral market, you may want to initially set your price at the last comparable sale and then adjust for the market trend. For example, if the last sale closed three months ago, but the median price has edged upwards of 1% per month, pricing at $154,500 would make sense.
Request a Comparative Market Analysis prepared by one of our local real estate experts. Call us . . . we're ready to help you achieve your goals!