What does pricing your house right really mean? I often tell my sellers that if we price your home "right" it will sell quickly but when I explain the "right," it always seems to be "wrong" in their eyes. Well the truth is the right price is the price it sells at, not what your neighbors sold for (though a good comp), and it is not what others are listed for; it is below that. David Knox (a very successful Realtor turned speaker and educator from St, Paul, MN) has a great phrase for this situation... "Do you want to stay? Or do you want to go?" If you want to go, let's price your house right and get it over with... if you want to stay, price it like everyone else (or higher) and pray you get an offer. It sounds so simple, but you would be surprised how many people stress their need to move in their words but take no action.
You could hire the best, most popular, highly regarded agent in town, and if your home is overpriced, no amount of marketing will sell it. In fact, the harder you market an overpriced property the more stigmatized the property becomes. Stigmatized means that people wonder what is wrong with it, and why it hasn't sold yet. Unfortunately, when sellers finally come to their senses and reduce their price, their potential buyers still think there is something wrong with the property; and agents don't want to show it because they think the seller will be difficult to work with.
So now to address the question at hand, "How do you price your home ‘right'?" Well, when going through the Comparative Market Analysis (CMA) with your agent (they must ALWAYS do a CMA to truly assess the value of your property), pay close attention to the list price versus the sales price versus the days on market (DOM). These are 3 items your CMA should always include.
Your CMA should be completed like an appraiser completes their appraisal report; after all, the appraiser is the final say in what your property is worth. In your CMA report there should be comparable properties (comps) that are as similar to your property as one can get. Homes located in the same neighborhood as yours or a comparable neighborhood (if there are comps in yours, they must be used first). Comps should have sold within the last 3-6 months and have a similar style - single level, split level, split foyer, 2 story, etc. Comps should have the same number of bedrooms, bathrooms, garage space, etc; though it is acceptable, and often necessary to make adjustments to values to make up for the lack of (or to include) these features. Square footage should be within a 100-200 square feet of your property, because adjustments for square footage should never exceed 10% of the property's value.
Now, when interpreting the data in your CMA report first look at the prices homes have sold for versus their list price. A lot of times you might think your neighbor's house sold for a particular price because of its listing price when it sold, but they could very well have taken less than that! When looking at these numbers, you do not want to automatically list price your home at the average list price. Instead, use the average sold price as your starting point for determining the "right" price to list your property. To understand why, look at the Days on Market (DOM). You will find that in our market it often takes properties 60 or more days to sale for about 3% less than their list price. There is often a reduction or two in there as well. If you have to sell, you don't want to start off where you know the property is going to sit on the market... you need to find where it will sell!
Once you have determined the average sales price, you are not done! Now we must look to your competition. This would be homes currently for sale in the range you want to be in. Depending on your price point you should pull homes for sale in your neighborhood for sale about $10,000-$15, 000 above and below your average price point. The reason for the range is to determine which properties are similar to yours, what they are listed for and how long they have been on the market. The goal is to "beat" these properties. The way to do this is to price your property for less and stage it to sell. You want your home to be the "biggest bang for the buck." Whether it is the exact same house, or features more than your home; a competitive price will almost always win out.
There is no exact formula to pricing your home to sell, but there is a logical method to it. When selling your home (whether you are shopping for a Realtor, or trying to sell your home on your own), you should always start with a Comparative Market Analysis (CMA) from a professional real estate agent. It is the only way to truly determine the "right" price for your home. No matter how long your agent has been in the business, this should always be done. The real estate market is continually changing, and what was the right price last month, may not be the same this month.
The Top 5 Reasons to Price Your Home "RIGHT":
1) To lure buyers from the overpriced properties. If your home is comparable to a neighbor's that is listed for sale, price yours less! If you are the overpriced property, you make everyone else's look that much better!
2) To show you are motivated to sell. Often time's buyers (and their agents) will not want to deal with a new listing that is overpriced. Even though you think you are leaving room to negotiate, you are giving off the impression you are unrealistic and will not be easy to work with.
3) Sell your property in less time. Statistics show that overpriced homes sit on the market for a considerably longer time than those priced to sell.
4) Sell your home for the most money. Many sellers think that they price their home high they can negotiate to where they want to be, but what they don't realize is that more often than not, you get less than what you were hoping for. Usually with a few extra mortgages payments too!
5) Less stress. Dealing with an overpriced property is stressful for everyone involved. Your agent will need to put more time, money and effort into selling your home, in hopes that they can actually sell it. Remember, your agent is putting hundreds (to thousands depending on the market) of dollars into marketing your property. If your home never sells, they never get paid to cover that cost! For you, selling your property means fewer showings. Showings are stressful because you have to keep your home in showcase condition for as long as it takes to sell. This is even more stressful if you are not having showings because the buyer's agents in town have realized you are overpriced.
Click Here for a FREE Online Video on "Pricing Your Home to Sell." by David Knox
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