Pricing the home correctly is the single biggest factor in whether or not you will sell the home or if it will sit on the market. Any home, in any condition, will sell if it is priced according to the homes condition and market conditions. The objective should be to prepare the home to show in the best possible perspective, photograph and market the home to as many people as possible, and price the home in a way that motivates potential buyers to leave their home or office and come look at the home. However, if you price the home at the very tip top of the market, you will reduce the number of potential buyers willing to come take a look. On the flip side, you certainly don’t want to ‘give the home away’ either. No one, including your agent, wants to leave money on the table. That’s why it’s important to take a good look at different variables that affect the current market value of the home and price it accordingly. Below, we’ll take a look at some of those key metrics.
Comparable Properties, often referred to as ‘comps’ are properties that are similar to yours that have sold recently. Depending on the area and type of home, this may include similar size units in the same condo building or similar buildings in close proximity. In more suburban areas you may take a look at similar properties in nearby neighborhoods. Ultimately, you’re looking for properties that would be interesting to the same buyer that would be interested in your home. After identifying some comparable properties, you and your real estate agent would make some adjustments based on the differences, for instance if your home has a 2 car garage but the comparable property had no garage or if your condo was a slightly different size or had a better view than the comparable condo.
Expired and Withdrawn Properties are properties that did NOT sell. You’ll want to also take a look at these and see if they did not sell because they were priced too high for the market. This will help you avoid the same over-pricing mistakes.
Competition: You and your agent will also look at similar properties that are currently on the market. You will want to avoid the mistake of pricing your home above the competition unless there is a significant reason to do so like your kitchen and bathrooms have been completely remodeled and theirs is original. Assume that a buyer interested in your home is also viewing the other homes in your area. If they see your home and then another similar home priced for less, obviously they’re going to go for the less expensive option.
Current Market Trends and your objectives should also play a factor in how you price your home. If the economy is booming, it’s a beautiful spring time market, and Amazon just announced they’re moving to the area, then you may be able to push the price of the home a bit higher than normal. Conversely, if there is some economic uncertainty and buyers are a bit more skittish then you’ll need to take that into account. This same balancing act is taken in regards to your goals and situation. If you have another home under contract that you’re buying and that purchase depends on you selling this home, then you’ll likely need to be more aggressive with pricing.
Be conscious of how buyers are shopping. Most buyers now start their search online. In doing so, they often search in $25,000 increments. So, a buyer may search for a home from $500-$550k. As a general rule, I would avoid pricing a home a $555k because the potential buyers searching up to $550 might love it but never see it, and the buyers searching between $550-$575 will see it as the ‘lower end’ of what they are looking for and likely buy a more expensive home.
Finally, beware of the endowment effect. This is a normal behavior that we all tend to value the things we already have over things we do not already own. In one well known study, people who already owned a coffee mug, valued it on average twice as high as the people who did not own the mug. This is a natural and normal tendency toward loss aversion that all humans have. Try to look logically at the data you and your agent have available and keep the potential buyer’s perspective in mind when choosing your ultimate list price.