Selecting an asking price can cause a lot of anxiety. Realtors offer their clients a thorough education in pricing strategy and current marketing conditions. Once you have all the facts and understand how to interpret them the stress is significantly reduced. You can select your own selling price based on the facts. However, in the final analysis the true market value of any property is only established when a willing buyer makes an offer that a seller is prepared to accept. Every other number is just a best guess!
Some of the main points on setting a price are listed below.
1. Be objective. This is hard to do, especially when you are so attached to an asset. However, prospective buyers will view your home in comparison to others in a very objective manner. If you can do this too, you will have a winning perspective. Many sellers will only get an objective opinion after six months of trying to sell. By that time they have normally lost some money as a result.
2. When comparing... Be very careful what you compare to. If you are going to compare your home to others to help ascertain an asking price, you must select and inspect that comparable property with great care. Be aware that there are sometimes influences that affect a selling price which cannot be seen at first pass. If the house identical to yours three streets away was sold in a huge hurry because the owners had to leave town, it is not a good comparable. It will often be better to pick a home that is not so identical that sold under normal circumstances and adjust pricing. Several things can affect sales that are not obvious on casual inspection including financing and relationship between the buyer and seller. You should also inspect the comparable home where possible. Simply selecting properties from a computer exposes you to a lot of potential risk.
3. There is no correlation between cost and fair market value. What you paid for the home has nothing to do with its current value, unless you bought recently. Recently being defined as within a time period where market conditions, influences and pricing have been stable. Sometimes a month is not recent and sometimes six months can be considered such. It is dependent on market volatility. To illustrate this point, imagine you won your property in a home lottery. The ticket cost just one hundred dollars! You could sell a home you won worth $500,000 for one thousand and make a great return on investment! Forget what you paid for your home when pricing.
4. You cannot charge a premium for maintenance or modernization. If your home is twelve years old and you just bought new carpets, you cannot add the cost of the new flooring on to your list price. Of course your home will probably sell quicker with nice new flooring. However, home owners are supposed to change out worn carpet. This does not mean that you should not invest in these kinds of improvements prior to sale. Because a prospective buyer will detract an amount from a reasonable market value to account for new carpets or other obvious defects associated with wear and tear. The same is true for outdated decor. Be mindful that purchasers will tend to overestimate the cost of improvements in order to minimize their risk. So it is almost always less expensive to do them yourself. If you choose not to, you run the risk of eliminating prospective buyers who cannot see past flaws, or those on a tight budget. A Real Estate consultant can advise you on how to ensure the home is the most sale-able with lowest investment in maintenance.
5. You can price too low. There is a school of thought that states you cannot price a home too low because if you do there will be multiple offers that will drive up the actual selling price. This is true in a hot market. However, in some markets setting a price too low will just facilitate a fast sale for below fair market value and set the benchmark lower for other home owners looking to sell for the best price in your area. Sometimes a really low price is needed based on personal circumstances. However, before setting a price too low carefully balance your motivations and the costs of not selling with the capital you will likely pass up.
6. There is no benefit to pricing too high. Over 90% of all purchases require financing. Banks will require an appraisal and will not finance a home for more than it is worth. In the unlikely event an overpriced home get’s an offer it will be very unlikely to pan-out.
7. Testing the market at a high price is risky. As stated above, you are almost never going to be paid more than a fair market value for your home, so there is no benefit in setting an asking price too high to “test” the market. Your home will get the most attention within the first thirty days it is for sale. During this time those in the market looking for a home like yours will form an opinion of the your value property represents and decide if they are interested. Even after you have lowered the price, your initial mistake can still cost you. Those coming into the market later will factor in how long your home has been for sale as part of their evaluation. You must discipline yourself to make a good decision early.
8. Put the asking price in perspective. If you are getting less than you wanted for your home, you still have a chance to make that difference up on the new purchase. If you are upgrading in a down market you will likely come out ahead once you have factored in both transactions. If you are down-sizing, you will likely free up some capital to invest elsewhere. The sale of this asset, as big as it is will not normally determine your entire financial future.
9. Once the price is set, don’t think about it for 30 days. There is no point thinking too much about your asking price. This is because in the end, the only price that matters is what someone is willing to pay for the property. After 30 days you will have been educated by the market as to whether your home is priced correctly. Wait and watch.
10. An appraisal is sometimes a good investment. If you do not feel good about the pricing, spend a few hundred bucks on an appraisal. It will give you a sense of what a bank will look at in regards to your home and it can act as a powerful negotiating tool.