Selecting the right price to ask for your home before going to market may be the most important decision sellers make next to what person they choose to represent them during the process.
Buyers will see your price BEFORE they see your home! Making it stand out on paper is important, but pricing a home too high will result in a long, drawn out, painful process leaving the seller asking tough questions about why the home isn’t selling or why they aren’t getting showings. But pricing the home too low may result in a sale that cost the seller thousands in unrealized equity due to having accepted an offer for far less than they could have realized if only they had priced the home right to begin with.
Understanding the real value of your home is the right place to start, and removing any emotional connection an owner has to their home will allow you to make well informed decisions.
Price your home based on the facts! Consider recent comparables. Compare your home to other homes of similar size, style and location. Comparing homes in other areas is not appropriate – most communities have sales history so start there. Look at what other homes (like yours) are ‘Active’ for sale in your area – these homes will be your competition. Compare your home to what’s been ‘Sold’ recently - this tells you what buyers are actually paying for homes like yours in the past few months. And look at the ‘Expired’ listings – this tells you what buyers are simply not willing to pay for a home like yours at this time. By looking at this information (and being guided by a true professional), you should now understand what range your home will sell within.
Now choose a price. You don’t want to be too high but being too low can be very bad thing. Do you want to build in a buffer or a little room to negotiate? You shouldn’t. Building a buffer usually means pricing too high. These sellers have begun the negotiation process on their own, and of course the problem is that there’s no buyer yet so this seller is effectively negotiating himself out of any interest. Understand where your home will sell and price it there.
Understand your range and how buyers shop. Buyers will see all the homes in their chosen area before buying one. They buy the one that represents the best value – for them. Investors shop in all price categories but never pay retail so don’t even worry about that group. To sell for the most money possible you’ll need to attract retail buyers. These folks shop in a narrow range very close to their qualification amount (or the amount they want to spend) so understanding your range is important. If your home is under $300,000 then buyers who qualify for $250 will shop up to $260; those who qualify for $270 will shop up to $280 and so on. But in a higher price bracket – say over $400,000 then buyers who qualify for $430 will shop up to $450. Buyers who qualify for $720 will shop up to $750. Understand that buyers are never qualified for an exact number like $437,519…. That’s not how it works. Buyers get qualified for a round number then shop for homes up to the next price break. So let’s say your home is in the $450,000 range. We know that these folks will shop up to $470,000. If your home is priced at $470,001 then the buyers qualified at $450 won’t see it. Makes sense right? Similarly, if your home is going to sell for $340,000 then the people that will pay the most will be those (retail buyers) qualified for $330,000. Those qualified for $320,000 (and shopping up to $330,000) won’t see your home at $340,000 and they shouldn’t, they can’t buy it.
So choose a price on the high side of the range your home is in. I mean if your realistic (non-emotional) expectation is $425,000 then price your home at $429,900 or something very close. Pricing your home at $425,000 is effectively the same as $429,900 because the very same buyers will see all the inventory in that range. The only time the extra $4900 will make a difference is when it’s time to negotiate. You and your retail buyer will feel better having negotiated to $425,000 from $429,900. The buyer saves $5000 and you get full, fair market value.