By: David Collins Professional Realtor
PRICING YOUR HOME TO SELL FOR THE MOST MONEY
When you put your home up for sale, you have 5 pricing choices. These are:
-Sell at Highest Value
The logical question is: Where do you want to price your home? Very few sellers will price it too low and will give away precious dollars while most sellers will price it above market and have to reduce their price at least once or numerous times. These sellers on average net less because negotiating time is negotiating strength. Most sellers who price too high get frustrated and ultimately settle for a lower offer. The other issue that I see is that after the initial contract has been agreed upon, the second round of negotiations is after the inspections have been done and if the buyer feels they are the only ones that have made an offer, they will be much more aggressive when it comes to asking for repairs. On the other hand, if the home is priced more competitively, the buyer feels that they don’t have the leverage to ask for repairs because if they walked away, the sellers could sell the home very quickly again. Bottom line, with over 100 homes sold as the listing agent, I have found that the better the price of the home out of the gate, the better the overall closing experience that the seller has. A lot less stress….
IMPORTANT PRICING CONSIDERATION- FACTS vs OPINION
My mentor, who sold nearly 90% of the homes he listed (60% is average), told me most sellers will ask him what he thought the home would sell for, he always answered, “What I think your home is worth has no merit whatsoever. The only thing that counts is what people are willing to pay for this kind of home, in this area, at this time.” This is the absolute truth. It doesn’t matter what you paid for your home or how much you need to net, it all boils down to what the market is willing to pay for it. And I will add that most overpriced homes that ultimately sell, sell at a much lower price than the listed price. You heard the adage, you can’t fool Mother Nature, it is the same here, you can’t fool the market.
When it is time to discuss price, the best agents present evidence in three groups: similar homes recently sold to show what people are willing to pay, similar listings that are on the market, and similar listings that have expired so you can see what people are not willing to pay.
Most sellers’ instincts are to price in the upper middle or higher end of the homes that are currently listed thinking that they need a bit of wiggle room. This strategy has been used from the beginning of time because most sellers think they can get more than the average but after a few months they realize that they need to get more aggressive with the price and so the reduce and things happen while the best homes on where they are headed are appreciating. So ultimately, their net is lower.
The above average strategy is to as follows: They select a listing price slightly less than the average of the currently-for-sale group and slightly more than the average of the recently-sold group. There is on average, a 5% to 6% spread between the average of recent sales and the average of currently-for-sale properties. This ideal listing price is half way between. Here’s how it works: by pricing slightly lower than the competition, more potential buyers will want to see your home and more agents will encourage their potential buyers to see your home. Because of the extra activity you will have a better chance of a full price offer that is slightly higher than the recent sales.
This works! Human nature is involved. Real estate agents look for the best buys for their potential buyers; potential buyers are looking for the best value. By selecting this strategy, you will have a better chance of getting more than what has recently sold and you will do it in less time.
Here’s some research that confirms that pricing right in the first place works best. The study was titled, “The Effect of Price on the Percentage of Homes That Sell in a Given Time Frame.” A one year study of over 1,000 homes showed that when a home was priced from 0-3% above the average of similar homes recently sold, 85% sold within 90 days.
When a home was priced 4-7% above the average of similar homes recently sold, only 55% sold within 90 days.
When a home was priced 8% or more above the average of similar homes recently sold, only 20% sold within 90 days.
What would work best for you, a 20% chance, a 55% chance, or an 85% chance?
By the way, the sellers who price 8% or more above recent sales didn’t get their asking prices. All had to make price reductions or had to accept realistic offers.
And consider this reality: pricing 20% above the amount buyers are willing to pay is also pricing 20% above what banks are willing to lend. Yes, even if you had a buyer offer the listing price, the appraisal is probably going to come back undervalued.
This leads to another key point…. When folks put their homes up for sale, they often get stuck on a certain price. They believe with all their hearts that their house should be worth $_______ because of ____ or _____ or _____.
When an informed agent shows them recent sales and current competition, their reaction is to get more opinions. Some sellers fell that they will be better with an agent who believes they can somehow sell at the inflated price.
The truth is that if you shop around long enough, you can find an agent who is hungry for a listing and will take your listing at any price. Obviously, these are not your above average agents. These are not agents who are capable of helping you get your home sold.
If you are inclined to try to get more for your house by asking more than your competition, consider these four facts.
The first problem is- It’s hard to other agents excited about your home. Their most valuable asset is their time and they do not want to take the time to show an overpriced home.
The second problem is- it’s hard to get good buyers to look. Even if an agent is willing to show your home, it’s hard to get good buyers to look. Serious, qualified buyers will find better value in another home.
The third problem is- even when potential buyers do look, it’s hard to get offers made. Serious, qualified buyers with a sense of urgency don’t want to tie up their deposit money for even one day on what they think is a hopeless cause or long, drawn out negotiation. Some potential buyers won’t make offers on overpriced listing because they don’t want to insult the seller.
And the fourth problem is the killer- it’s hard to get financing. Even if you find a buyer willing to pay your inflated asking price, where are the buyers going to get financing? Lenders know what most people are willing to pay for your kind of home at the time it sells. They are willing to finance 70% or 80% of the current appraisal, not an inflated agreement of sale.
A good reality check- If there are no showings, it means that agents don’t see the value at the asking price. If there are showings but no offers, potential buyers don’t see the value.
Some sellers initially overprice because they feel the need to have negotiation room. The problem here is that when you give yourself negotiating room, you usually lose negotiating strength.
Think it through, you add 5% or 10% to give yourself negotiating room. The extra asking price results in fewer showings. Your deadline or frustration level rises and you finally get an offer, but it is 5% below the average of recent sales. You have seen numerous homes that you want to purchase go pending along with market appreciating and the only offer you have is a low one.
A better strategy is to price slightly less than the average of similar homes currently for sale and hold firm on your price. You are better off countering all offers at full price than not having any offers to counter.
Here is an example of the penalty of overpricing. Two nearly identical homes on two identical lot sizes on two adjacent streets, Maple and Elm went on the market a week apart. The owner of the house on Elm want negotiating room. He insisted on a price of $190,000 saying, “Bring me offers. I will negotiate.”
At that time the average of similar homes currently for sale was $171,000. He was $19,000 above his competition. Three months later, having no showings and his yard getting overgrown because it was hot outside, he reduced the price to $172,000. Still leaving a bit of negotiating room, he again said, “Bring me offers, I will negotiate.”
How do you negotiate when no one makes an offer?
For the next two months there were a number of showings but no offers. Finally, he was presented with his first offer- $158,000. He had now paying his lawn guy a lot more money to keep his yard in good condition and more importantly, homes that he liked on Zillow were getting sold. He tried to get the buyer to come up on the price but with other homes on the market, he had to accept the offer.
During this five month period the average selling prices were $163,000. It took him 5 months to come up with the $5,000 less than the average selling price of $163,000. Now let’s see what happened on Maple. The owner decided to price his home at $168,000; $3,000 under the average asking price. Within days he had multiple showings and in 2 weeks he received a full price offer. So it took Maple 2 weeks to get a $5,000 gain over the average selling prices for that area, and it took Elm five months to come up with $5,000 less. OUCH…..
Why does this happen? Very simple, when buyers see good value in a home, they will rush to make a very good offer because they are afraid of LOSING the home. They also have very little leverage when it comes to the inspections and repairs because, again, they know if they put up a stink about repairs, the sellers can replace them in a heartbeat. Think Black Friday or a Costco Trip. When you see something of good value, you make the purchase and usually buy more. Same idea here. Fear of loss is probably the strongest motivator, use it to your advantage.
If you are still struggling with the difference between what you want to sell your home for and what current selling prices actually are, ask yourself these two questions….
What happens if no one will pay the price I am asking, what will I do?
Suppose the best offer is at or near the average of recent sales, would I accept it?
Almost every experienced agent will tell you that you will have the best chance for a faster sale for a better price by listing it in the competitive range right away.
PLEASE NOTE- I have examples of both types of sales and you will see that the homes that sold quickly, sold for much closer to the asking price while the homes that sat on the market took a bigger markdown. You will know right away if your home is priced correctly and if not, get it priced correctly because these change, even in sellers’ markets. I will also add that the homes that got less of a sales price/longer on market were much more stressful for the seller during the contract to close period.