IT’S HARD FOR A SELLER TO BE OBJECTIVE ABOUT THEIR OWN HOME.
When I am advising a seller on how to best price their home, I first let them know that it doesn’t really matter what I think it is worth in today’s market. It doesn’t matter what they think, or how much money they want, or what the neighbor or their brother-in-law thinks. Most people have an emotional connection to their “home”. For that reason, the owner of the home can often be the worst judge of it’s value. How do you put a price on the kid’s birthday parties or the first prom. How valuable are the memories of Thanksgiving or growing the garden? The only thing that matters is what a buyer thinks it’s worth.
WHAT DATA SHOULD YOU LOOK AT?
You have to try your best to put those emotions aside and look at the data objectively. Which data? The data that tells you what a buyer is likely to pay for a house similar to yours in similar condition and in your location, and in a REASONABLE amount of time. You must only use what other houses have sold for. It may be tempting to think, “Well, the guy down the street is asking $X. I know mine is better than his (of course it is, it’s yours, with your emotional attachment), so I’ll ask more than that.” The problem with that is, what if that seller has overpriced his? What someone is asking tells you nothing about what the market will pay.
EXTRAPOLATING FROM HOUSES THAT DON’T MATCH EXACTLY
What if there are no exact matches? Every house is different. No two are exactly alike. What we are looking for is a few data points that show us in dollars per square foot, usually, to answer the question, “Are we higher than this one or lower than another one, per square foot.” If we can find 3 to 4 sold properties, that are somewhat similar, some higher and some lower, we can find a price bracket that tells us a range from high to low price how much the market may be willing to pay. Inside that price bracket, then we can look at others that were sold very recently (currently Under contract) waiting to close. We won’t know what the actual sales price was, but we can see what they were listed for and compare to our seller’s house. Then we can look at expired and withdrawn listings that didn’t sell and see where they made mistakes in either condition or price. Lastly, we look at what houses we may be competing with currently. If we have a house that looks like we may list it between $240,000 and $260,000, we look at competing houses and what they offer and how much they are listed for. If the competition is few or their condition is poor, maybe we push to the upper end of the bracket. If the ones that recently sold are newer and lower per square foot, maybe we slant toward a lower number.
BIG ROUND NUMBERS MAKE A DIFFERENCE
Another important thing to look at is where your suspected price is in relation to large round price points. Here’s the reasoning: If you think about how buyers look at houses, there’s a $5,000 or $10,000 increment that, based on their budget, they won’t look beyond. They may think, “Based on a desired payment of $X, that puts me at a price of $X.” They may look just beyond that (by $5,000 to $50,000, depending on price range) thus assuming the seller may have some negotiating room built in and will come down a bit. That highest number is a big number for the buyer, psychologically. So, if your suspected price puts you near one of those round numbers, you’re usually better off going just below one that going above it. You will get a different group of buyers. Your house will compare better with those in the lower bracket and you’re more likely to get a better offer.
OUTSMART THE COMPETITION!
For instance, I once told a couple listing their home, “We can price this from $435,000 to $450,000 based on the comparable sales. It depends on what you want to have happen. The $435,000 will likely create an instant sale with potentially competing buyers. $450,000 may take awhile and we may have to bring it down later. If we start at the higher price, we risk becoming stale on the market. In this particular case, the seller chose the $435,000 list price and within a week, two buyers made offers. One was for full price of $435,000. The winning offer was for $450,000!
Many, many sellers imagine they have to build in negotiating room. The truth is, a negotiating cushion is often a burden, and may make your house less competitive. You are much better off, pricing a house at the market so you are not arguing with a buyer about the value. Potentially, two or more buyers are competing among themselves to bid the price up and write a better offer than the next guy. You get to control the terms, often the closing and possession date and the buyers may be easier on inspection repair items than they would if the house had been on the market a long, long time. In the latter case, the buyers feel like they are doing you a favor to take it off your hands (at a lower price, no doubt) where in the former, they feel like they lucked out to find such a great house at such a competitive price, when in fact, most of the other competing sellers may have built in negotiating room that made it appear our listing was a great price. (to be continued)