Pricing a property has gotten a lot harder.
If you are working in a hot market it's difficult because appraisers are looking backwards to see what has sold and often times don't take into consideration the rapid market appreciation.
If you are in a flat market, buyers could be expecting the market to decrease even further and not be willing to pay what looks to be the norm for the area.
So how does a listing agent price a property to get it sold?
What Is the Seller Thinking?
Like most people, sellers want what they want.
They have gone to various web sites to see what their house is worth and track what has sold in their neighborhood.
If they are like most sellers they feel their house is better.
They mistakenly believe that the majority of their home improvements will translate into a higher list price.
Unfortunately, this isn't always the case. New windows, plumbing, electrical upgrade or professional landscaping be nice, most buyers don't care about such things.
Perhaps they should, but they don't.
Pricing is About Psychology
On the other side of the coin, buyers want a deal.
We all want a deal.
Buyers want to tell their friends they got a deal. If they pay $499,000 for a property, they tell their friends that they just bought a house for under $500,000.
Technically they would be correct, but in reality they paid $500,000.
But that's just how our brains are programmed to work.
Retail establishments do this all the time...$1.99, $4.99, $29.99.
It's all about the psychology of pricing.
But in real estate it goes a step further.
If we think the price of a property should settle in around $525,000, we may price it at $499,000 and let the market carry it to where it should be.
The psychology behind the pricing is letting the buyer decide that it's worth more than $499,000. If the listing agent tells the buyer that the house is worth $525,000 they may take issue and find a dozen reasons why it isn't worth that price.
Getting To the Right Price
So how do you get to the right price?
At your listing appointment let the data do the talking for you.
Walk the sellers through how an Appraiser works.
Show them the comps from the past four to six months. Make sure they understand that some of the properties may "fall off" if their property doesn't sell quickly.
You'll also want to show the seller their competition.
If at all possible, you'll want to see each of these properties in person so you can tell the seller the pros and cons of each property and how their property compares.
Once you have viewed the seller's property you can then give them a price range.
Talking Price With the Seller
When discussing the list price with the seller always give the worst case scenario first.
Because the first number the seller hears is the number that will be stuck in their head.
In the excitement of trying to get the listing it is far too easy to put out the highest sales price, but in doing so you could very easily be setting yourself up for failure.
The truth is we don't have any guarantees as to how much a property will sale for.
We look at the most recent data, make some adjustments and come up with a price.
Once the property is on the market, the market will tell us if we are low or high.
Let the seller know that pricing is not an exact science.
What About Multiple Offers?
Often times the seller will ask if they will receive multiple offers.
This is one question that is impossible for you to answer.
Help the seller wrap their head around receiving one good offer at or around the list price.
Ask the seller this question.
"If you were to receive one offer at the list price, would you accept it?"
If the answer is "No", they need to list it at a price they are willing to accept if they only receive one offer.
Do a Seller Net Sheet
Along the same lines as "Say the Lowest Price First", you should give the seller a net sheet which outlines some of the possible scenarios.
If the price range can vary between $450,000 and $500,000, calculate net sheets at $450,000, $475,000 and $500,000.
Allow the seller to digest this information now when they aren't under pressure to get back to an interested buyer.
This is helpful when an offer comes in because they will have a good idea as to what their estimated proceeds will be.
If seller credits are common in your market, include them in your net sheets.
Give the seller as much information as possible upfront and save yourself stress and frustration on the back end.
It is better to under estimate net proceeds than to over estimate them.
The Market Has the Final Say
Pricing a property is not an exact science.
I hear agents say, "the house is priced well, so I don't know why it's not selling."
But here's the reality.
If a house IS "priced well", it will sell.
When a property doesn't sell, the buyers are telling the seller there is a disconnect between the price and the property condition, property location or the layout of the property.
Sellers should know that real estate agents do the best they can when pricing a property.
It doesn't matter what the seller wants.
It doesn't matter what the data says.
In the end, the market has the final say.
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