How To Set The Price Of Your Home

[Rick Howell]

Pricing your home is tricky and can be the hardest part of selling a home. 

Setting a price can make the difference between selling a home quickly and having it remain on the market for months. Here’s what you need to consider when setting the price of your home:

Buyers have a lot of tools at hand. Today’s buyers don’t take the price of a home at its face value. There are tons of websites that help buyers find home prices across the country – including your neighborhood. When your buyer knows the property value of the house for sale down the street, they may be less likely to come view your higher-priced home.

Homes that sit on the market are less attractive. If you price your home too high, you risk having it sit on the market for weeks or even months. The longer it sits, the more buyers are wary – they may assume that it’s priced too high or has something wrong with it.

Reducing the price may not help. A price reduction can draw some buyers in, but it may also dissuade others. A price reduction can sometimes imply that the home has flaws, which may turn some buyers away.

Setting the right price can draw competition. A reasonable or slightly low price will attract more buyers than a home that’s priced too high. Competition may help potential buyers to overlook flaws and act quickly to snap up the house before their competition does. In some situations, this can even lead to bidding wars.

The Internet helps – to a certain extent. While the Internet can provide a general valuation of your house, you should turn to experts to get a more accurate property value. Particularly if you’re selling a home without a real estate agent, you’ll want to consider using an appraiser. It can take longer and cost more, but it also helps you to get the best picture of how much your home is worth.

Selling a home is more than just throwing open houses and signing paperwork. It’s crucial that you consider the price of your home before you do anything else. It can help you sell your home quickly, which saves you money and energy down the road.

[Charlie MacPherson]

@Rick Howell Buyers have tools, but some of those tools are nearly worthless.

Take Zillow for example.  In my market, Zillow's own claims for the accuracy of their "Zestimates" is that 79.3% of the time, they're within 20% of the actual value.  With an average sales price of about $550,000, that means that they're within $110,000 of the actual value - EXCEPT for the 20.7% of the time when their error is MORE than $110,000.

The one reliable way to determine value is to run precise comps.

That means looking at sold homes that are very similar in style, beds, baths, sq ft of living area, acres, basement, garage, septic, year built, condition and upgrades.  These comps should be ideally within 1/2 mile or less and sold within 6 months or less.  

I have automated Realtor tools like CloudCMA and RPR, but I run mine manually and present them as a spreadsheet.  It's far less cluttered and much easier to read.

Yes, it takes more time and work, but I have a lot more confidence in the results.

There are two basic strategies.

1. If the local market is very hot, price it 5%-ish below the actual market value, restrict showings until the first open house, get all the buyers banging into each other at the open, solicit offers by 6 PM the next day.  This is a good technique to  getting a bidding war going.

2. If the market is just normal-hot and a bidding war is unlikely, price it right at or 1% above market value.  Run an aggressive open house schedule.  Add Realtor's secret marketing sauce.

The thing I run into most often is sellers who say "list it high.  We can always come down later, and who knows?  We might get a sucker!"

The reality is that homes that are overpriced just sit on the market.  You'll be forced into a series of price reductions over an extended period - all while you're paying for whatever loan you have, plus taxes, insurance and utilities.

Overpriced homes eventually sell for less than they would if they had been correctly priced in the first place.  

Even if you do get a sucker, lenders will not let the buyers overpay. If the buyer is financing with a low/no down payment loan (VA, FHA, USDA), the sale is likely to blow up unless the seller reduces the sale price or the buyer brings supplemental cash to closing.

Bottom line:  Do the homework or hire a Realtor to do it and get a solid understanding of the property's value.  Then price it right.