Deciding what price to list your home at can be challenging. However, there are several strategies to help you find that 'perfect' price. In this lesson, we will look at the factors you need to consider and the options you have available so you can find the path that is best for your situation.
- Pricing strategy leaves little room for emotions
- The right strategy helps you achieve your goal
- 3 common strategies = right, below & above
- There's an inverse relationship between listing price and speed of sale
If you’re preparing to sell your home, you’ll have to come up with a list price. The list price is what you’ll be putting your home on the market at as an invitation to buyers. There are a few different approaches on how to establish a list price. A listing and a list price is an invitation for an offer. It’s not an offer itself. You’re simply marketing your property at that price. You are not obligated to sell it at that price. So if you list your property at $400,000 and someone offers you $400,000 you are not obligated to accept that offer. In fact, so many other variables formulate an offer, in terms of the quality of the buyer and split of fees, for example. First – What Not to Do One common mistake that sellers make is thinking how much they want to get for their house or thinking in terms of what they might need. Well, what you want or need really plays no role and in fact, it can be counterproductive when it comes to selling your home for the most money possible. Clearly, the goal for any homeowner is to sell their home for the most money possible. It’s a savings account that you worked hard for and sacrificed in many ways to build. At the end is when you need to maximize profits. It’s a seller’s right to sell that home for as much personal gain as you can. It’s a savings account you sacrificed for – for a good long time. Now it’s time to reap the rewards. Selling price is probably the single most important aspect in selling for or walking away with the most money possible but it’s not the only variable. The Importance of Strategy However, let’s talk about pricing strategy for a moment. The first step in pricing your property is knowing as closely as you can what it’s worth. The way to do that is to be looking at market comps in the area. (Check out my video discussing how value is determined) But you want to be as fair as you can in evaluating what your home is really worth. In the end, your home will need to appraise. So if your home is worth $400,000 and someone offers you $500,000 – unless they have all cash – they will need to get a loan. A lender will require an appraisal. While an appraiser might favor the fact that someone is going to offer that much money, they are going to look for whether or not there is support for that price. They will be looking at the recent sales just as you are – and if there is no support then it won’t appraise. Homes can’t sell – practically speaking – for a whole lot more than they are really worth. What are Your Choices for Strategy? Now there are different approaches to pricing a home. One is to simply price it – right – at the price you really think it’s worth. This takes a little bit of courage because you’d like to get as much money as possible, a little bit more than that, or at least leave a little bit of wiggle room. However, when you price a property fairly, you get quite a bit of attention. You get anybody looking at properties in that price range. It will appear to be a value property or at least a reasonably priced property and that is attractive to buyers. Another thought is to come in below what it’s worth. This has been done quite a bit in recent years with many of the foreclosures that were on the market. They would generate 10, 15, or 30 offers in some cases. The strategy behind pricing low is to make sure that everyone in the market that is in that price range is identified – so they present themselves to you and you know who they are. So let’s say you have a property that you think is worth $260,000. If you price your home at $260,000, people that set their search (their automated search) at $200,000 to $250,000 often won’t find you. Many sellers will often then price their home at $249,000 to try to get as many buyers from different pricing categories as they can and thereby as many offers as possible. The risk in pricing low is that you don’t get enough offers. Therefore, if you have a property that you think is worth $260,000 and you price it at $249,000 and you don’t get offers; you may not have been accurate in your pricing. There may be some special quality in that property that could take a little bit more time to market. Or you’re likely to start seeing offers less than that $249,000 asking price. Another strategy is to price high. This is more traditional and leaves room for negotiating. So if you have a property that is worth $350,000 and you price it at $360,000 you are leaving some room for someone to offer a little bit lower and essentially feel like they’ve negotiated with you and gotten some extra value. From a negotiation standpoint that can be very satisfying – a buyer feeling like they got a good buy. So pricing a property a little bit higher leaves you wiggle room for negotiating with a buyer. Which One is Right for You? One important component of pricing – typically, there’s an inverse relationship between the price and the speed with which you sell a home. The more you’re asking – the longer it will take to sell and the less you ask – the faster it will sell. Therefore, if you’d like to sell quickly, pricing your home on the lower end of its value range is a good idea. On the other hand, if you have time, you can go a little bit higher and know that you have time to work with. Unfortunately, there are limits to this. If you price too high, it will take longer, and in the end, you’ll simply have to drop your price. Agents watching properties for sale will watch for price drops. When there is a property that’s been on the market for a period of time with a series of price drops – it demonstrates you’ve got a seller that has been unrealistic and really doesn’t know the value of that property. When a property has been on the market for a long time, it’s suspicious to buyers, especially in a market as fluid as ours. Just because you start with one strategy doesn’t mean you can’t change – it’s unusual – but you can. One important thought to bear in mind is that buyers search based on thresholds. They’ll be looking for properties between $300,000 and $400,000 or $300,000 to $350,000. The $100,000 increment is a very big one so if you price a property at $401 you will be losing all of the buyers that set their threshold at $400,000. Also, a $410,000 pricing actually takes you out of the market of the people looking at $350,000 -$400,000. So bearing that in mind is important to your pricing strategy. The $100,000’s line ($300,000; $400,000; $500,000) is a very big line, the $50,000’s are the next largest ($350,000 – $400,000; $400,000 – $450,000), and then there are the $25,000’s ($425,000 – $450,000; $450,000 – $475,000). Knowing those lines and setting your pricing to maximize where buyers are searching will help you appeal to and been seen by the broadest market possible. In the end, it’s important to know what your property’s worth and to be practical when it comes time to sell. If you’d like to get in touch and talk about what your property might sell for feel free to give me a call or send me an email.
Lesson File 2
- Lessons List
- Find a home, plan to stay
- Contract Contingencies
- Asking the seller to pay closing costs.
- What Does "As Is" really mean?
- What is "escrow" all about?
- Writing Offers
- How Much Home Can You Afford?
- Long Term Housing Outlook
- Multi-Family Housing
- You can buy a house, but you have to make a home.
- Closing Costs
- Is Home An Investment
- Home Values Appreciate With Inflation
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