The asking price you set for your home significantly affects how much you will profit in the sale, and how long your home will sit on the market. Your real estate agent’s knowledge of the overall market and what’s selling – or not selling – will be invaluable in helping you determine the price. The objective is to find a price that the market will bear but won’t leave money on the table.
Here are some pricing tips to consider:
Time: Value vs. Cost: Pricing your home to sell in a timely fashion requires some objectivity. It’s important that you not confuse value with cost – in other words, how much you value your home versus what buyers are willing to pay for it. Don’t place too much emphasis on home improvements when calculating your price, because buyers may not share your taste. For instance, not everyone wants laminate floors or dark stained cabinets. Styles and tastes are so different. Pricing will be based mostly on the comps in your surrounding neighborhood. If a home has sold that is similar to yours, then you can expect to price your home in that range within the same market. If the market is inching up, then you can increase your price within the expected market appreciation. Again, if the market is inching downward, then expect to price you home a little lower than the market at the time you list. You always need to stay ahead of the market.
Testing the Market: I often hear from sellers that they want to price their home higher to test the market- to see if they can get more for their home. The good news is – the market has already been tested! Look at all the homes on the market that have not sold yet. Have your Realtor show you the expired and canceled listings. These are the sellers who already tested the market. Usually sellers can get away with pricing their home higher if the improvements can justify the price. If you want to price your home little above the market that is fine as we don’t want you to leave any money on the table. But be willing to adjust quickly so your home does not get stale. Why would any buyer want to pay way above market value? Put your buyer’s hat on, and think like a buyer when you plan to sell. Now some homes are very unique and very hard to comp because there are no other similar homes. In some markets there may be no sales within the range of your home. Then it takes a lot more work to determine the pricing. In this case we often ask the seller to have their home appraised. Remember that whatever your sell your home for, it still has to appraise for the buyer’s offer.
Price Adjustment: In the present market we have right now June 2016 in the Peninsula Bay Area, if your home is on the market for over 3-6 months depending on your price range and you have low showings and no offers, then your price is too high. Some lower prices homes or condos, sell fast if they are priced right. If Realtors are showing your home but no offers, then your home is being used to sell lower priced homes in the area. Remember the market decides what you home will sell. Not the seller, Realtor, only the buyer. Plan to make a price adjustment fast to match market value. Otherwise your home will become stale and people will think something is wrong with it. Now in a higher priced market, like Pebble Beach or Pacific Grove, or a home that is unusual, you should plan on a longer listing time line. It can take longer to find a qualified buyer in these markets.
I have had experience with sellers who made price reductions that were not within line of the market. Let’s say they listed their home at $2,500,00 in a declining market, and the market priced it at $2,000,000. After sitting on the market for 6 months with no activity, they lowered it to $2,000,000 thinking that this is the new market value. But no, the market kept declining and now the market is at $1,800,000. You need to keep up with the market and not chase it.
Keep it simple: Because time is of the essence, make it easy for the buyers. Remain flexible on when your agent can schedule showings. Also, try to avoid putting contingencies on the sale. Though a desirable move-in date makes for a smoother transition between homes, it could cause you to lose the sale altogether.
Up Front Inspections: Get a Pest or Home Inspection- If you are selling a home that a new home buyer can qualify for, experience tells me that homes that can qualify for FHA and VA financing, usually get multiple offers. This happens only if they are priced at market comps. Multiple offers usually get top dollar and often get more than list price. Sometimes we recommend that sellers get a pest or home inspection so they know what the defects are upfront. Either the seller can make the repairs upfront opening up the house to more qualified buyers or disclose the repairs upfront so that they don’t accept an offer that will not approve because of the condition of the home. We sometimes recommend up front inspections for these reasons:
Less Buyer Fall Out: If an FHA Buyer beats out other offers, does their inspections and finds out that there is $3,000 worth of wood rot, their loan will require that the wood is replaced.
Keep the Buyer in the Game. Knowing the defects of a home up front will allow buyer to offer a price that takes the repairs into consideration. This is the typical scenario: Buyer makes an offer and it is accepted by the seller. The buyer finds out that there are defects that were not known about the house. After finding out the price of repairs, the buyer has 5 options. 1. Ask for the seller to make repairs. 2. Do the repairs themselves. 3. Ask for a price reduction if the seller does not want to pay for the repairs. 4. Ask the seller for credit for the repairs. 5. Cancel the offer.
Again, make sure you are working with an experienced agent so that they can educate you about your best solutions for an easy close.