Pricing Your Home to Sell

As a Realtor®, telling a seller the price he wants to hear may get his listing, but it won’t sell the home. We’ve all heard that real estate is all about location, location, location. It’s really all about price and condition first, and then somewhere location enters the mix. To sell homes, you need traffic coming to the property, and nothing kills traffic worse than overpricing. Correct pricing depends largely on the absorption rate in the area where the home is located.

The overall absorption rate is published on several sites available to agents. Here is a simplified example of how it is calculated:

• First, determine the number of homes closed in your market over a specific period — say, 12 months. This data is available from the MLS.
• Next, divide the number of homes by the number of months in the period — in this case, 12. This calculation gives a per month absorption rate.
• Last, divide the rate into the number of current listings. This yields the months’ supply of homes.
  

So if 12 homes sold in Pickens in 12 months, the per month absorption rate is 1. If there are 10 homes listed in the county, you would have a ten month supply of inventory, indicating how long you should expect your home to be on the market. Six months is considered a balanced market, with a higher number indicating a buyers’ market, and lower numbers a sellers’ market. Understand that these numbers fluctuate from month to month because of changes in the number of homes for sale and the ones that sell, so watch for trends rather than peaks and valleys.

The next step is to employ this technique to specific price ranges to determine how many homes are for sale in each price range, and what the absorption rate for that range is. You may find that there is a twelve month inventory of homes at your preferred price point, but if you drop the asking price $5,000 there is only a four month inventory with fewer competing listings. You can also use it to analyze the climate of a particular neighborhood or smaller geographic area.

It’s important to keep in mind that lenders will only approve loans that can meet appraised value, so if you are holding out for an uninformed buyer to overpay, you may end up paying mortgage payments, taxes, insurance, and maintenance for the additional time on market, and still have to sell it for the lower price. That is a losing formula that happens too frequently.

Absorption Rate Pricing is not for the faint hearted. It does not care that you have a new roof and granite countertops. It only factors the price point where homes are selling. If your objective is to sell your house as quickly as possible, it is a useful tool. However, more homes sell more quickly for $150,000 that $500,000. Obviously you can’t use the absorption rate as the only factor.

This space does not allow me to go into a more detailed study of Absorption Rate Pricing. It’s really a pretty simple concept, but it has a lot of moving parts, so it’s not easy for some people to understand. If you have any questions about how this could help you sell your home, feel free to call me or contact your real estate professional for more information. Local agents understand your market best.