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HOW TO PRICE YOUR HOME TO SELL

Whether you list with an agent or decide to go the For Sale by Owner (FSBO) route, home sellers need to know how to price your home to sell!

Inventory across many states are at an all-time low; and with that many home sellers are asking above and beyond true market value for their homes.  Though this may seem like a good decision, it is not a wise one.

In our working relationships with countless sellers over almost 2 decades, we have had the opportunity whether on a listing appointment or in speaking with a FSBO to ask them how they came up with the price they are asking for their home.

Here are the top 5 reasons we have heard:

  1. I know what I paid for it and I added the cost of all the improvements and upgrades I have made.
  2. The neighbor down the street is listed for “X” and my house is in better than theirs.
  3. I don’t have to sell, I am waiting for a cash buyer to pay me what I want, or I won’t sell.
  4. I don’t have to sell, but if someone gives me what I am asking, I will sell it
  5. If you had to rebuild this house, you couldn’t build it for what I am asking.

Though these reasons may appear to have some logic to them, they are really more rational than reality.  We will discuss each of the reasons and why they are not valid reasons for arriving at a realistic price for your home.

Reason #1 – What you paid for your home has nothing to do with what its worth on the market today.  Real estate is cyclical and every month sales comparables change and then is reflected in the housing market valuation for your particular area and subdivision.

Sure there are certain improvements that homeowners can make to your property that will add value at resale.  We posted  the top improvements here on a prior blogpost. Even with that being said, you do not get “dollar for dollar” cost for the improvement.  For example, if you pay $30,000 to add a pool or new addition, it will not increase the market value by $30,000.

When it comes to determining “market value” there are generally 3 methods:

  • Sales Comparison
  • Cost Approach
  • Income Approach

Reason #2 – Each home is unique as to the square footage, floor plan, amenities, upgrades, renovations, condition, etc.  So even though your neighbor received a certain sale price, your home may not be able to achieve the same valuation or it may be worth more.

Reason 3 – We hear this one mostly from For Sale by Owners.  Unfortunately, people with the kind of cash it takes to buy homes in the 21st century did not get rich by throwing their money away.  Most cash buyers are astute investors, life long savers, etc. and they do their research and know the market.

The odds of getting someone to overpay for your property are slim to none….unless you have a truly unique property that someone just really wants and feels they can’t recreate elsewhere in that area.  But those buyers will typically build not purchase a resale.

Reason #4– This statement always perplexes us.  If you are not serious about selling, why are you “testing” the market.  This is a bad idea especially if you use Zillow or Trulia where they keep a record of how long you have been on the market for the public to see.

Buyers start to think something is wrong with your home after they see it listed for too long.  They can see other homes in your area selling, while yours is still sitting on the market and the negative perception about the property will come into play. Subsequently you will have to reduce your price and do what we Realtors call, “Chasing the market down”.   The more time you spend on the market, the less you will likely receive for your home!

Reason #5 – When appraisers come out for the lender, assuming you have a buyer trying to obtain financing, they will pull all sales comps within a 3 to 6 month period to begin their “sales comparison” approach to establishing valuation.  They will not be doing a “cost approach” to estimate the reproduction or replacement cost.

That type of appraisal is generally used for public buildings, such as schools and churches, where its difficult to find recent sales in the local market to use as comparables.  So, this reasoning is fundamentally wrong and is probably the number one reason for sellers over pricing their home if they were the original home builder/owner.

At the end of the day, how to price your home to sell, comes down to market knowledge, knowing the local trends, knowing return on investment for improvements, different depreciation factors, etc., and that’s where having a knowledgeable real estate agent will come into play.

As real estate agents, we not only have immediate access to the latest up to the minute closing data, but we also have automated valuation models, information about the neighborhood and other specific data such as “absorption rate” for your neighborhood that are essential to arriving at a realistic sale price for your property.

We realize Zillow is now the top real estate website used by consumers looking to buy or sell real estate, but we ask you to read the outcome of the class action lawsuit about their Zestimates and proceed with knowledge about how their home pricing algorithm works.  You can read about it here.

How to price your home to sell is not based on luck nor guessing.  It has to be done with strategy for positioning the home in combination with correct and detailed property market analysis and valuation.

Let us know if we can be of help in getting your home priced right for the market!

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