If I had a nickel for every time I have been asked this question by a client whose home I was about to market...Well, let's just say I'd have a lot of nickels.
I cannot stress enough the importance of pricing a home correctly (and aggressively) from the moment it hits the market. This is especially true in a market as challenging and diverse as the one we are currently experiencing. I am speaking in particular of the subarban metro-Detroit area of Michigan. And although real estate is indeed local, the situation doesn't differ much across the entire United States. I will elaborate further on why this is essential.
One must remember that when your home is placed on the market, there exists an inventory of buyers for which you and other homes currently on the market are competing. In this day of ever increasing technilogical advancement, that inventory of buyers (at least most of them) have automatic searches set up by their Realtors so they will be alerted to new homes coming on the market that match their buying criteria. Because I represent buyers as well as sellers, I can tell you that nothing gets a buyer's attention quicker than a "New" listing that matches their criteria. I put new in quotes here because I am speaking of a true "New" listing, not a listing that has been removed from the market and then placed back on it so it appears "New". I hate to break the news to those well-intentioned agents/brokers out there who try this, but BUYERS ARE NOT THAT STUPID!
Anyway, I digress. For a period of about 3-5 weeks (not all buyers will react immediately to a new listing), you as a seller will have a captive audience of hundreds of buyers just waiting to judge the saleability of your home. If your home is priced correctly, this is an incredible weapon. If your home is priced incorrectly however, prepare yourself for a long and frustrating road, the end result of which is a home sold for tens of thousands (hundreds of thousands if your home value is over $1 Million) of dollars less than had your home been priced correctly to begin with. It will also take months and, sometimes years, longer than it would have otherwise.
Once this "captive audience" determines that your home is priced too high, a vast majority are not interested in the countless price changes that are about to follow. In a market such as we find ourselves, there is a large enough and a steady enough stream of new properties entering the market to keep home buyers busy. They simply do not have time to bother also keeping up with the properties whose prices are adjusting. Thus, once the initial 3-5 weeks passes, as a seller, you must rely on the slow influx of new buyers entering the market while your home is for sale. This number of prospects pales in comparison to that initial captive audience that was present when your lawn sign first went up. It is a fraction of the number that were at a seller's fingertips initially. Again, this will make for a painstaking and frustrating process. In short, you can never recreate the first 3-5 weeks of the marketing of your home. Don't make that mistake.
There is another reason that makes it paramount to price a home realistically and aggressively from the start. That reason is the appraisal. Because of the current nature of the mortgage industry (I don't believe that crisis is too strong a word), lenders are being extremely cautious and conservative. If the lending institution is being cautious and conservative, then the underwriters of the lending institution are being cautious and conservative. If the underwriters are being cautious and conservative, you can bet that appraisers are being equally defensive, if not moreso. Couple the mortgage crisis with the proponderance of appraisal fraud present in the last five years and one gets the picture - residential appraisers are walking on eggshells, making a surprisingly (or even realistically) high appraisal very unlikely. One of the most unpleasant situations a seller can find themselves is finding out a day prior to closing that their home must go back on the market because the buyer did not qualify for the mortgage for which they had applied. Unfortunately, this scenario is happening with increasing frequency. Not only do you as a seller have to go through the entire marketing process again, but you have also lost approximately 4-6 weeks of valuable marketing time processing the sale that never happened.
So one may ask, how do I price my home realistically? Firstly, as a seller, you should rely on your licensed Realtor to put together a comprehensive Market Analysis. If I were selling my home, I would be sure to ask my Realtor to please keep the future appraisal in mind when they put together the CMA. In other words, I would ask my Realtor to look through the eyes of an appraiser (It is important to realize that Realtors are NOT appraisers however) when performing the CMA.
In addition, with the climate of the current residential housing market, I would recommend to sellers that they hire an appraiser to perform a "Fee Appraisal". A fee appraisal is an most accurate and dependable measure of the value of a home. This is because the fee appraisal is independent of anthing other than the value of the home. It is not tied to or dependent on a mortgage or a home equity line credit or anything else. Depending on the market, this will cost less than $500 and is well worth the cost. In addition to the level of confidence that it provides, a fee appraisal can be a wonderful marketing tool for the seller of a home. The words, "Home Priced $$$ Below Fee Appraisal Price" can be extremely powerful in the marketing campaign of a home.
From a practical standpoint, I would also recommend the following. With your Realtor, print all of the homes currently for sale in your price range within one square mile of your home. I would define "price range" as a range equal to ten percent of the value of your home. In other words, if your home is worth approximately $500,000, use a $50,000 price range. If your home is worth $1 Million, use a $100,000 price range. And so on. Now let's take a look at this list. Can you honestly and objectively say that your home is in the top 1% - 2% of values on that list? If you cannot...you need to lower your price. If you are not willing to lower your price, I would suggest you go out and get yourself a comfortable chair...because it's going to be a long ride!
To summarize, I have one thing to add...
Can we just try this price for a while? "No. We can't.
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