The price is what get’s people to your front door. Below is information and strategies to assist you in pricing your home:
1. Basics
2. Price Range Matters
3. What Are Good Comps?
4. Don’t Underestimate Buyers
5. Tools to Assist in Determining Listing Price
6. Assessed Values
7. Hire An Appraiser
8. Things That Effect Neighborhood Pricing
9. Supply and Demand
10. Absorption Rate
11. Timing
12. Renovations and Updates
13. Price Reductions
14. What Buyer’s Will Pay Extra For
15. Staging to Sell
16. Other Pricing Strategy
1. Basics:
How you price your home will depend on if it’s a buyer’s market or a seller’s market (see “Absorption Rate” below).
Price range matters. Buyers may not even know your home exists if you’re not in their price range. Buyers think in $25K increments and appraisers think in terms of price of neighborhood (see “Price Range Matters” below). To get a more precise analysis, hire a local appraiser, it’s their job to determine the market value of a home.
Invest your time in visiting public open houses to see the competition, know what is currently on the market, what’s pending, what sold in past 6 months, and even expired listings because those are typically the homes that expired because of the price or people couldn’t get in to see them.
Compare apples with apples, compare your home to others like homes, and know your neighborhood.
Price… Price… Price… If you price your home too high it can sit on the market longer and people will wonder why it hasn’t sold and there’s a good chance you’ll end up selling it for less than if you priced your home correctly.
Even the condition of a house can be cured with a price. If the price is low enough it will sell.
Don’t underestimate your buyers.
In an agent survey, about 77% of homeowners think their home is worth more than recommended… and 67% of buyers believe home values are overpriced. (Source: HomeGains National Survey)
2. Price Range Matters:
Buyers typically think in increments of $25,000. If you are pricing your home at $359,000 you may be better off pricing your home at $350,000.
The rule of zeros… if you price your home at $400,000 you’re going to get the buyers who are looking for homes from the $300,000 – $400,000 and you’ll also get the buyers who are looking in the $400,000 to $500,000 range. If you go with $399,000 list price buyer search results are only going to include one segment, not both.
Some real estate computer programs only let you search in $25,000 increments. Wherever you end up pricing your home, you want yours to stack up well against other homes. If someone is searching in the 2 $150,000 to $225,000 range, pricing your home at $205,00 might not make your home stand out. Consider pricing your home in the lower bracket of the $25,000 range to $200,000 to stand out.
Another pricing strategy but probably not as good, but you should be aware of, is to price with 9’s to avoid zeros because it invites negotiations even though many buyers believe they must negotiate regardless. For example, instead of pricing at $350,000 price your home at $349,000… and too many nines, $349,999 is off-putting.
Appraisers are experts at valuing your home; they look at neighborhoods in terms of the price range. If you know that the houses in the neighborhood are selling from $200,000 to $250,000 and you want to price your home at $325,000 it’s not going to sell because the person looking in the $300,000 range wants to move to the $300,000-$350,000 neighborhood and often buying the most expensive house in the neighborhood is not
typically where buyers want to be.
3. What Are Good Comps?:
Two things to remember; numbers don’t lie and housing markets are local.
A good comparable or comps are homes in your area, with comparable square footage, number of bedrooms, number of bathrooms, and the size of your property/lot and the type of home. If you are selling a ranch don’t be looking at colonials as a comparable home.
Look at the active market. You can go to any broker website, including this one, and search for properties for sale in your area. If you live on the west side of town try to stick with west side properties. If you live on the outskirts of town don’t be looking at in-town properties as a comp.
Look at not only what is active on the market, look at what’s pending, look at what sold in the last 3-6 months, and the length of time on the market… and go look at the competition’s public open houses to see if they are freshly painted, de-cluttered, renovated, etc., you want to know how your home measures up to the competition. This is part of what makes a realtor an expert; they actually see numerous houses on the market and the condition of the properties. Makes yourself an expert, go see the competition and keep track of what’s coming on the market and how your home compares.
4. Don’t Underestimate Buyers:
Buyers are out shopping, looking at open houses, pulling up information online, and there’s a good chance they’ll know how long your house has been on the market. Know what they know… go to public open houses and see the competition…. And know your neighborhood and its like properties.
There are exceptions where you have a unique property niche… like a hunting cabin in the woods where you may have to expand your search out 20 miles or some other special niche where you’ll have to go back further in time, maybe over a year to find comps.
5. Tools to Assist in Determining Listing Price:
There are a number of sites that you can pull up-sold information, price reduced properties, and active properties. Many broker websites will offer this information. Also, AVM’s (Automation Valuation Models or Methods) like Zillow’s Zestimate (Zillow.com/Zestimate) will work if a whole lot of things are right. Where they fall short is having the correct data.
AVM’s like Zillow use public records and they are getting better at it all the time but they can’t tell you if it’s an arms-length transaction, that is, if a grandparent is selling the house to a family member for 50% of its value causing the average value in the area to decline or if a buyer paid $100,000 for a house and got a seller’s assistance with the closing cost for 6%, in which case the buyer didn’t actually pay $100,000 they paid $94,000 affecting the overall value of the area and the AVM won’t pick it up. Real estate agents have knowledge; AVM’s have data.
6. Assessed Values:
Assessed Values are hardly ever used to price a home. Assessed values are 70% of their fair market value and it changes over time and assessed values can be higher or lower than the actual market value.
When a property is being assessed people don’t always accurately report what’s in their home because they don’t want their taxes going up so the public records may not be accurate. Whereas the MLS that realtors use may more accurately report what’s going on inside a house, for example, a remodeled or finished basement may not show up in public records but it will show up in the MLS.
7. Hire an Appraiser:
You can hire an appraiser; it’s their job to determine the market value of your home and you’ll get an objective opinion. You can go to the Appraisal Institute to find a certified appraiser in your area that knows your market. Most likely if your buyer is getting a mortgage the bank will send out an appraiser to know that they aren’t lending more money than they can recover.
8. Things That Effect Neighborhood Pricing:
Know your town and neighborhood. Knowledge is power. If you go to http://profiles.ctdata.org click on the page that pops up, it will take you to the page with a list of Connecticut towns, click on your town, you’ll get a single page of information about your town.
According to the National Association of Realtors, most buyers would be happy to pay a bit more to be in the exact part of town they’d like to move to or the school district of their choice. Many variables can affect the market price but keep in mind that just because you live within a quarter of a mile of the park doesn’t mean you can tack on an additional 10% to your selling price, you still need to know your neighborhood.
The Federal Reserve Bank of St. Louis found that above-average public schools (with math scores 4.6 better than average) increased the value of nearby homes by 11% on average.
A University of Pennsylvania Wharton School study showed having a park within a quarter of mile can increase house values by 10%.
If you are located close to a power plant, landfill, or manufacturing plant, two studies (Arizona Assessor’s office & Berkley) said that homes can sell for 1% to 10% less than homes further away.
Access to main roads and highways… people are willing to pay more to live within a couple of miles near an on-ramp to save money on time and gas but if you are too close, within a half-mile, noise and pollution can lower the price.
Vacant land in a rural area can be a good thing but in urban areas, it can have a negative effect. Wharton School found the more vacant lots in an urban neighborhood drag down values for surrounding homes by 18%.
Distance to stores depends on the community. MIT said homes in urban areas within a quarter-mile of retail clusters (shops and restaurants) sell for 6% to 8% more than average. If you are in a suburban area and closer than a mile from retail centers, homes actually sell for 8% less than average.
Foreclosures can drag down a neighborhood’s prices. According to MIT the value of a home decreased by 1% for every foreclosed home within 250 feet of it and plus owners of foreclosed properties aren’t as interested in maintaining the property. Source: Windermere Real Estate
9. Supply and Demand:
Supply and demand are in the context of your market. If you have a lot of supply you’ll need to be conservative in your pricing (buyer’s market) and if the supply is low you can price more aggressively (seller’s market). Absorption rate will help you determine the kind of market you’re in.
Events and circumstances can affect supply and demand like new employers moving into the area, or flood zones that make it a challenge to ensure property, and even a Starbucks can be an indication of a neighborhood. Starbucks isn’t responsible for adding value to the neighborhood, but they do a lot of research to know where to put their Starbucks.
10. Absorption Rate:
To simplify matters… you are trying to figure out how many houses sold or were absorbed by the market annually to help determine if you are in a buyer’s market or a seller’s market. For example, a buyer’s market would look something like this:
Last year 120 houses sold divided by 12 months that means 10 houses a month on average sold.
This year there are 180 houses on the market for sale, divide that by 12 months, that’s a supply of 15 houses a month on the market.
o That’s 5 houses more a month than what were sold the previous year and most likely more houses will continue to come on the market.
o Therefore if it’s looking like a buyer’s market you need to be less aggressive in your pricing and bring the price down.
A seller’s market would look something like this:
If 240 houses sold last year, divided by 12 months, that’s on average 20 houses a month that sold.
This year you have 192 houses on the market for sale divided by 12 months, which means you have a housing supply of 16 houses on average a month for sale.
o Under these circumstances you have a supply that doesn’t meet last year’s demand, you have 4 fewer houses available for sale each month.
o In this situation where it’s looking like a seller’s market, you can be more aggressive in your pricing.
Important…Consider dividing the solds into bracketed price points. There can be a lot of houses selling but it doesn’t mean all the houses are selling. It could be more houses are selling in one price range than in another.
Couple side notes…If wherever you are pulling your solds from is not accurate it will matter, you need this information to be accurate to know what you are dealing with and you need to be specific. Analyzing the whole market/town is a good place to start, however, if you are in a large town don’t look at all sales, look at the sales specific to your area and your property.
If you’re selling a ranch, don’t be looking at two-story sales of housing inventory, even though it’s an option for buyers, you are trying to identify what your best pricing will be. 3-6 months of sales are great but you can go back 12 months. Having a handful of comps that are specific to your property is better than having lots of comps that don’t apply.
11. Timing:
Even if your house is competitively priced sometimes it sits longer. If you need your house to sell as soon a possible then price your home more competitively to entice buyers with the value they get for their money.
Typically, the spring market is the busiest time of the year and there will be more homes on the market. You’ll have more competition but it will also bring in more buyers. In some cases the end of summer when kids are getting ready to go back to school, or taking that last summer vacation, people get busy and the market can slow. Come fall, once kids are back at school the market will start to heat up again.
The winter has lots of holidays and it can be a very stressful time to sell but the buyers that are out shopping for a home at this time of year there’s a good chance they are very motivated buyers.
12. Renovations and Updates
Renovations and updates can be tricky. Don’t fall into the trap of trying to add on money that you spent over the last couple of years thinking it will add value. Many improvements are actually maintenance and not improvements. Cost doesn’t equal value. Improvements can play into the condition of your house. If you have two houses that are 30 years old and one has a new roof and an updated bath it will get a better condition rating [from an appraiser] versus the one that has everything original.
That brand new bathroom tile that you loved, buyers may not feel the same about it or the in-ground pool you
put in two years ago, some people don’t see a pool as a benefit. Square footage added, new master suite,
those are the types of things that more likely add value.
13. Price Reductions:
You should have a built-in plan when you’re going to reduce the price. The bulk of your showings will happen within the first three weeks your house is on the market. If you don’t get any offers within the first 10 showings or 10 days, reduce the price. If you wait too long you’re going to miss the bulk of the current buyers and then your house will become stigmatized by both buyers and agents.
If you’re getting a lot of showings, but no offers and good feedback from the showings then considered reducing the price by 1%-2%. If the majority of the feedback comes back as average or negative then you probably want to reduce the list price by 5%.
Things can change before you realize it’s happening and if the market is declining you don’t want to be chasing the market on its way down, and under these circumstances, small price reductions can backfire and you should consider a larger price reduction, consider a 5% reduction. If you aren’t getting any showings than maybe you should consider a 10% price reduction.
Eric Jordan, a real estate coach, has a 21-day approach. His approach is meant to help you get the most money for your home. If your home doesn’t sell within the first 21 days the property needs to be reduced by 3%-5%. If your home doesn’t sell within 42 days, reduce the price again by 3%-5%.
Sellers don’t set the price, buyer’s do; it’s what buyers are willing to pay for what you’re selling. The good news is if you’re willing to wait, eventually the market will come up to meet your number… the bad news is how long are you willing to wait?
As mentioned earlier, even houses in poor condition can be solved with a price.
14. What Buyers Will Pay Extra For:
As mentioned earlier…according to the National Association of Realtors (NAR), most buyers would be happy to pay a bit more to be in the exact part of town they’d like to move to. School districts are another reason buyers are willing to pay more for the same house to be in the school district of their choice.
Things like central air conditioning, new stainless steel appliances, center island kitchen, walk-in closet in the master bedroom, and hardwood floors, are all things the National Association of Realtors say people are willing to pay more for. Central air was considered very important by all ages. Someone looking for the first homes they won’t be as concerned with granite countertops, walk-in master bedroom closets, or an ensuite master bath and for others… a homeless than 5 years old where there’s not a lot of maintenance and built more efficiently will be more appealing.
15. Staging to Sell:
National Association of Realtors® (NAR) Research Group did a 2019 Profile of Home Staging… the link is provided below:
https://www.nar.realtor/sites/default/files/documents/2019-profile-of-home-staging-03-14-2019.pdf
Studies were done by Real Estate Staging Association found:
Study #1 – of 634 homes:
o Unstaged homes spent on average 107 days on the market before staging.
o After staging homes spent on average 25 days on the market.
o Homes that were staged prior to going on the market sold on average 18 days on the market.
Study #2 – of 89 homes:
o Unstaged homes remained on the market for 166 days before calling a stager.
o After the homes were staged the homes received their first offer in 32 days, 9 with multiple
offers.
Study #3 – of 359 homes:
o All of these homes were staged before they went on the market. On average they received
offers in 26 days and nearly 70 of them received multiple offers.
The cost of staging would go something like this…
If your mortgage is $2,500 a month and your staging costs $1,000 a month, that’s $3,500 a month for your costs.
If your home is on the market for 30 days that’s one month’s staging plus one month’s mortgage to get your
home sold.
If you don’t stage your home, using the framework above, and your house is on the market 120 days without
staging that’s $10,000 in mortgage payments that you will still be paying.
The theory does you want to pay $3,500 to get your house sold in one month or do you want to pay $10,000 in mortgage payments waiting for your house to get sold. Of course, there are no guarantees that come with staging and numbers given here are to give you a frame of reference, a place to start.
According to NAR’s profile, the importance of rooms being staged for buyer’s would be… the living room first 47%, master bedroom 42%, kitchen 35%, dining room 24%, yard/outside space 21%, bathroom 19%, children’s room11%, and guest room 8%.
You don’t have to stage every room or if you have an area that doesn’t quite work well with other parts of the home, stagers can help with those troubled areas.
With staging you’ll look better than other homes on the market, buyers will be more willing to overlook some troubled areas in your home if the rest of your home presents well and your home will photograph better and look better online and create more foot traffic.
Almost always staging will have an effect on the buyer. A staged home will appear to be move-in ready, the clutter will be gone and the rooms staged will be depersonalized so the buyer can picture themselves in the home.
Stager will help you decide what to put away and what to keep out.
Don’t forget to stage the outside of your home. Some buyers won’t even go inside if they don’t like the way it looks on the outside, they’ll just pass and go to the next home.
Overall, it doesn’t seem that staging ever has a negative effect on buyers. The goal of staging is to get the most money in the shortest amount of time.
If you are looking for a local home stager you can to the following web page for a list of home stagers in your area:
https://www.realestatestagingassociation.com/content.aspx?page_id=1770&club_id=304550
16. Other Pricing Strategy:
If you are thinking you want to try a more aggressive strategy you could price your home a little under the market and wait for competitive offers to come in essentially creating a feeding frenzy pushing the price up…but that may not happen. If it doesn’t but maybe you still get a full price offer with no contingencies, it doesn’t get better than that even if you didn’t get beyond your asking price… and the best offers usually come in first.
It’s risky if you’re asking price is above the market but if you truly have a desirable property and the housing supply is low, you could get a buyer willing to pay more but beware of an appraisal contingency in the offer. Be on notice if the buyer has made an offer above market there’s a chance the property won’t appraise out…that is the appraiser ends up with a lesser number than the buyer is willing to pay. It doesn’t necessarily
mean the buyer is not going to get a house but the buyer could walk away from the deal and will be able to with that appraisal contingency.
Also, you could get an offer with an escalation clause. An example of an escalation clause would be if the buyer says I’m willing to pay $1,000 to $2,000 more than whatever your best offer is and most likely you as the seller will take the buyer’s top amount of $2,000. Maybe not a good idea for the buyer but it could work for the seller.
Final note, some buyers do not want to be in a bidding war and will walk away so a bidding war is not always an enticement for the buyer.
