Here is something you may or may not want to hear from your real estate professional – pricing your home in today’s market is just as much about art as it is science – and by science, I mean math. The ‘math’ of coming up with a likely sales price within a determined range of value is pretty straight forward. The ‘art’ involves knowing the market, the trends, the neighborhood, and details about the houses in the neighborhood.
Just as importantly, consideration must be made for why a move is necessary. What is the underlying reason for selling the property to begin with? What is the desired outcome of the sale? These factors may be considered by some as being irrelevant to the end result, but I firmly believe getting these goals and expectations on the table up front are critical to a satisfactory experience.
Generally, when one sells a house it is a pivotal step in the process of a new life experience. This may be taking a new job or starting a new career across the country, it may be about getting to a larger home to accommodate a growing family, it may be about downsizing, or it may be purely financial. The point is the reason matters.
Being clear about the ultimate reason for a move, which probably involves some pretty strong emotions, does not mean you should become emotional about setting a list price. Many otherwise completely rational and business minded individuals succumb to what can best be described as ‘magical thinking’ when it comes to what they think their house is worth.
Pricing a piece of property for sale without considering the reality of the market can result in a property that is overpriced and will never sell, or in admittedly rare cases, result in pricing a property too low and leaving cash on the table at closing. I say that under-pricing a house rarely results in money left on the table because even in today’s market, underpriced and even well priced houses generate multiple offers that result in sales above list price.
Working with your Realtor®
The most productive and satisfying real estate transactions occur when you partner with your Realtor® to sell your home. You and your Realtor® need to have a productive working relationship. Your Realtor is there to offer advice, counsel, experience, and expertise in pricing, sales, presentation, and marketing among a myriad of other tasks and duties. You do not want to hire a Realtor® just because he or she agrees with you. You do want a Realtor® who will tell you the truth about the market, your house, and how they can help you meet your personal goals and expectations.
Realtors, even the very best in the business, are not miracle workers. They cannot make someone buy your house. Their job is not to make someone buy something they don’t want to buy or buy something that does not meet their needs. The best Realtors in the business will help you position and market your house in such a way as to attract the greatest number of potential qualified buyers. The primary component of positioning and marketing a property is establishing the right list price.
The Comparative Market Analysis (CMA)
A CMA should not be confused with an appraisal performed by a licensed appraiser. An appraisal, such as is done for a mortgage loan, is generally a far more in-depth analysis of a property’s value at a given moment in time. A good CMA will mimic the appraisal process and will be a good indicator of what a property will later appraise at when it goes under contract, assuming that the buyer is using a mortgage to fund the purchase.
A complete and thorough market analysis should include the following:
• Identify all similar properties that have sold in the immediate area in the last six to 12 months. Six months is best, but if less than three comparable sales have occurred, we will go back further in time.
• Ideally, the sold homes will be located no more than half a mile from the subject property. However, physical barriers matter. A home less than a quarter of a mile away, but located on the other side of a four-lane highway, will probably not be a good comparable property.
• Comparable sales should be as close to the subject property in style as possible. Single-story homes should be compared with other single-story homes and homes with basements compared to other homes with basements, etc.
• Homes of similar age should be used as comparables. A home built in the 1930’s is unlikely to be a suitable comparable to one built in 2005.
• Another important technique is comparing the sales dollar per square foot of living space. For instance, if a 1000 square foot ranch sold for $100,000, the sale per square foot number is $100. Since any two or three houses are seldom identical, this is often the best method for comparing multiple properties.
While the most important consideration for pricing a property is what similar properties have sold for in the recent past, what is on the market today, and at what price, matters as well. Based on an analysis of recent sales, we can tell pretty quickly how competitively priced other houses on the market are. Visiting open houses or even viewing photos and virtual tours online will give you a sense of the overall condition and amenities available in the area and at what price.
If competing listings are priced below recent comparable sales, simply pricing your home ‘on trend,’ assuming all other factors are equal, will result in disappointment. However, if the subject property is of superior quality and condition to other homes on the market, it will pay to price the home at the higher end of the value range, but not so high as would cause informed buyers to walk on by. Remember, just because sellers can ask whatever they want for their properties, it does not mean they will get it.
The ‘art’ of pricing a home correctly, especially in a buyer’s market means leaving yourself a bit of room to negotiate, but not so much that you fail to attract qualified buyers. To do this you and your Realtor® must have a clear, unemotional, picture of the market and how your property compares to recent sales and current listings. If you are thinking of selling your home, take a partner, call a Realtor® today.
