In a competitive market with fewer buyers, more homes for sale and longer market times, you want to do everything you can to be sure your home doesn’t linger on the market. Listings which expire without selling and often without a single offer become harder to sell at the best price.
While you can’t control the market or the buyer pool, there are things you can control when trying to sell your home. We’ve already addressed how home condition, staging, and aggressive marketing can improve the odds that your home will fare well against the competition. The final element is setting the right price.
The key here is “the right price.” A home in perfect condition, staged well, and aggressively marketed will sell for top value when the price is appropriate given market conditions. The price will suffer if any of the three elements is inadequately addressed. However, if a home is overpriced it won’t sell, even if it is in pristine condition, shows well and is marketed appropriately.
A home’s asking price is the final determinant in how quickly it sells and whether the sale price approaches the home’s value.
A quick word about “the home’s value.” Basically, a home’s value is what two parties agree on as a selling price. It doesn’t matter what you paid for it, how much you have spent for maintenance or improvements, how much you need to get out of it, or what the county’s assessment says. Market conditions are much more important in determining your home’s worth at that moment in time. The bottom line is determining at what price range you will find a buyer who is willing to pay that amount for your home.
So how do you determine an asking price? Appraisal, county’s assessed value, replacement cost, and current competition are some of the ways a home’s value can be determined. The best way involves a combination of all of these. Several years ago I developed a very accurate pricing method that I call “4 Point Pricing.”
4 Point Pricing
- Point 1 – The appraisal method (often referred to as a comparative market analysis) considers three other homes in the immediate area making adjustments for quantifiable differences such as a finished basement, more or less square feet, garage stall count, or walkout lower level. This initial consideration gives an indication of the subject’s price based on how the other homes faired in the market. The key to this method is location: all of the homes considered must be in fairly close proximity to the subject house. Including homes outside the general neighborhood decreases the accuracy of your comparison.
- Point 2 – The second step is to compare price per square foot. This works well if the comparables are pretty much the same with the amount of finishing, garages, etc. The result gives a range of consideration. The subject home’s condition influences whether the appropriate target price is at the higher or lower end of this range.
- Point 3 – An Area Market Survey (AMS) considers the overall current market conditions. By comparing the number of homes currently available with the number sold over the past year, we estimate the absorption rate or how long it would take to sell out of all the current homes for sale. A high absorption rate generally reflects higher inventories and longer market times with the implication of softer prices in the future. A low absorption rate is usually a sign that prices are on the rise. Knowing how market conditions are trending can help you decide how aggressive or conservative you should be with your pricing.
- Point 4 – Finally, the current competition in the targeted price range needs to be considered. Analyzing the pros and cons of those homes with respect to yours can help you fine-tune your pricing strategy. Potential buyers will compare your home to the competition so it is very important that you do so as well before setting the price. If your home is the nicest in the price range you should be in good shape. However, if there are other homes just as nice or nicer in the same price range, you need to adjust accordingly. Remember that these homes have not sold yet and they may need to come down in price before they do. You are better off pricing slightly below ALL of the competition to insure a profitable sale. A lower initial asking price and a quick sale are more likely to put more money in your pocket than a higher asking price that needs to be lowered several times over a longer amount of time.
Once you have studied all 4 indicators look for a convergence of value. That price is usually the right price!
Ultimately, the decisions you make will influence how quickly your home sells. If you are willing to take the time to prepare your home for sale, select a realtor who will aggressively market your home, and carefully assess market conditions when setting your asking price, you can increase the likelihood that your home will sell quickly and for top dollar, regardless of the market conditions.
Copyright © Shawn Buryska
