When it comes to listing a home for sale, the biggest challenge is often setting the right price. How do you ensure you get fair market value? Is it better to be priced to sell, ensuring you reach as many buyers as possible, or would you prefer to aim high, hoping you find the right buyer for your home? That one person who will fall so in love with your home that negotiating an extra 5 or 10% off the asking price won’t matter to them as much as going into contract and getting the home locked down ASAP. At the end of the day, it’s the market that will determine fair market value, but there are steps you can take to ensure you’ll get a higher price. Let's start by looking at what not to do.
There are plenty of reasons sellers talk themselves into overpricing a home. Usually, you see this happening when a seller feels little pressure to sell within a specific time frame or mistakenly thinks they can always lower the price later and still get the same results. Other times agents might come in and overpromise on the price to try and win the listing. Or maybe a FSBO (For Sale By Owner) seller might feel they need a certain amount of negotiating room. Typically though, it's a mixture of one of the reasons mentioned above combined with a strong, personal connection to the home that results in the thought that buyers will pay a premium to live there. And why not, as there are certainly plenty of times when homes with "pie in the sky" pricing have sold. All it takes is one buyer, and why shouldn't you be able to find that buyer?
The problem with this line of thinking is that the odds are not in your favor. Nine times out of ten, you'll end up with a worse result than if you had priced the home correctly. There are numerous reasons for this, but here are the most significant contributing factors.
1) Overpriced homes get fewer views, and therefore attract fewer potential buyers.
2) Correcting the price of the property with a price drop is not a great solution. Online property listings get far more traffic when they initially hit the market, so pricing a home correctly from the get-go is crucial. Days on the market not only impacts views but also affects buyers' impressions of the home. Even though the price may be corrected, the home will still appear "stale" to both buyers and listing marketplaces, which will give it worse placement compared to newer listings.
3) Some buyers will be intimidated by the price. They might not make an offer that is significantly below asking price for fearing of offending the seller or might not even bother to view a home they feel is overpriced. This is more common among buyers who are not working with a real estate agent.
Homes that are priced to sell attract more buyers
When it comes to getting the most for your home, it all comes down to listing it for the correct price. Your listing will get more online views, more showings, and in turn will sell for more, faster. But pricing to sell doesn't always mean underpricing (read on to find out how higher-priced homes can get more traffic) or trying to generate a bid-war. There are times when you may get a higher price if a bidding war breaks out, but the real goal should be to set a price that generates interest. You should be receiving inquiries from buyers within 24-48 hours of publishing your listing, and homes that are priced to sell should expect to receive an offer within 30 days.
Now, let's take a look at how to come up with the correct price.
One of the first steps in finding out the value of a home is to run comps, i.e., to look at recent sales of comparable properties as well as what comparable homes are currently available for sale. It's often easier to look for comps in large urban areas than in suburban or rural areas. In NYC, for example, you can often find direct comps within the same building for most condos and co-ops, making things quite easy. If an apartment of the same size, or better yet in the same line, but a few floors below or above recently sold it can make a great comp. Real estate agents will then typically put all these comps together into a report called a CMA which stands for comparative market analysis. A CMA report is particularly useful when you don't have any direct comps available and need to make adjustments and judgments based on the individual qualities of your home.
So where do you start if you can't find any recent sales in your building or if you’re looking for comps on a townhouse or a single-family home in the outer boroughs? Well, as the saying goes, location, location, location. Location is everything, and this is where an experienced real estate agent can be invaluable when it comes to pricing a property. For example, when pricing a home for sale by owner, the owner might look at comparable properties in the neighborhood, but not take into account other variables. Things like how close the home is to public transportation, what school district is it in, or even how close is the nearest synagogue? It's also essential to have a good understanding of the local market trends and to be up to date on any planned commercial or residential development for the area that might impact prices now and in the future.
One of the most overlooked aspects of pricing a home relates to understanding how buyers navigate the major real estate websites in your market, and what the typical price brackets are on those markets. Essentially, you want to keep in mind that most buyers will filter their search results by price. This means that there are times when a price adjustment can mean more than double the traffic. Here is an example.
You’re selling a NYC condo that you believe is worth $1,510,000 as an apartment with the same floor-plan just sold a few floors below for $1,500,000. While the higher floor should sell for more, in theory, it would be a major mistake to price the property at $1,510,000. The reason being is that many NYC real estate marketplaces use search filters and the $1.5 million mark is an upper cutoff. By listing for $1.51 million, you will miss out on buyers who are setting a cap of $1.5 million. Similarly, it would be a mistake to try and get too fancy and list for $1,499,000 as the apartment would not show up in any searches performed by buyers who set a $1,5 million minimum.
There are plenty of other factors that can influence the listing price. For example, what condition is the home in, has it been upgraded or renovated? Or why and how quickly does it need to sell, are you in a rush to find a buyer? You should even consider external factors like the time of year it is or what might happen to interest rates in the future.
All-in-all, correctly pricing a home is an art form that takes quite a bit of knowledge and experience to master.