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How To Set a Price For Your Home

December 15, 2009

How to Set a List Price for Your Home

Setting the list price for your home involves evaluating your home as well as various market conditions and financial factors. During this phase of the home selling process, your Realtor will help you set your list price based on:

  • pricing considerations
  • comparable sales
  • condition of your home  
  • market conditions
  • offering incentives

Pricing Considerations – Find a Balance Between Too High and Too Low

Buyer’s shop by comparison, they preview homes in the areas they are looking and the price range they can afford. Buyers typically base their selection of a home on what’s most appealing to their personal tastes but also what they feel is the best value based on all of the homes they’ve seen. So it’s important to consider this when setting a list price for your home. Please consider these additional pricing factors:

If you set the price too high, your house won’t be selected for showing. Even though yours may be much nicer,it needs to be priced appropriately and in comparison to other homes in the neighborhood. And while you may have told your Realtor ”Bring me any and all offers. As frankly, I’d take less.” What buyers and their agents see is a home that simply appears overpriced in comparison to other homes in the community, and too expensive to be considered.

If you price too low, you’ll short-change yourself. Your house will sell promptly, yes, but you may make less on the sale than if you had set a higher price and waited for a buyer who was willing to pay it.

TIP: Never say “asking price”, which implies you’re willing to accept less and frankly don’t expect to get it. Instead confidently inform interested parties that your home is “priced at” whatever figure you and your agent come up with.

Price Against Comparable Sales in Your Neighborhood and Community

No matter how attractive and polished your house, buyers will be comparing its price with everything else on the market.

Your best guide is a record of what the buying public has been willing to pay in the past few months for property in your neighborhood. Your Realtor can furnish data on sales figures for those comparable sales and analyze them to help you come up with a suggested listing price. Of course ultimately the decision about how much to ask, is always your own.

Competitive Market Analysis (CMA): The list of comparable sales your Realtor provides to you, along with data about other houses in your neighborhood that are presently on the market is used for a “Comparative Market Analysis” (CMA). To help in estimating a possible sales price for your house, the analysis will also include data on nearby houses that are presently on the market as well as those which failed to sell in the past few months, along with their list prices.

A CMA differs from a formal appraisal in several ways. One significant difference is that an appraisal will be based only on past sales and will not take into account those homes currently listed, that is your competition. Also, an appraisal is done for a fee while the CMA is provided by your Realtor and will typically include properties currently listed for sale as well as those currently pending sale. For the average home sale, a CMA is all the information you’ll need to help you set a proper price.

Formal Written Appraisal: A formal written appraisal (which may cost a few hundred dollars) can be useful if; you have unique property, there hasn’t been much activity in your area recently, co-owners disagree about price, or there is/ are other circumstances that make it difficult to put a value on your home.

TIP: If you do order a market value appraisal, make it clear you don’t need an elaborate, or full narrative report, i.e., the kind that’s complete with photos of the house and neighborhood. Floor plans and a site map is sufficient in most cases.

Market Conditions – Is it a Buyer’s Market or a Seller’s Market?

A CMA often includes a Days on the Market (DOM) value for each comparable house sold. When real estate is booming and prices are rising, houses may sell in a few days. Conversely, when the market slows down, average DOM can run into many months.

Your Realtor can tell you whether your area is currently in a buyer’s market or a seller’s market. In a seller’s market, you can price a bit beyond what you really expect, just to see what the reaction will be. In a buyer’s market, if you really need to sell promptly, offer an attractive bargain price.

If You Price High, Set a Schedule for Lowering the Price

Some sellers list at the rock-bottom price they’d really take, because they hate bargaining. Others add on thousands to the estimated market value “just to see what happens.” Our group does not recommend the latter strategy as the price at which a home eventually sells is inversely correlated to it’s time on the market and thus it is best that the home be priced appropriately from the start. Furthermore, homes typically receive the highest levels of traffic in the first 30 days they are listed and thus if the home is initially over priced you are missing out on the best opportunity to sell your home! However, if you want to try this strategy, have the luxury of time to feel out the market and are willing to take the risk, sit down with your Realtor and work out an advance schedule for lowering the price if need be.

If there haven’t been many prospects viewing your home after three weeks, you may need to lower your list price. If that doesn’t bring any prospective buyers, you may need to lower your list price again. Plan on doing that regularly until you find a level that attracts buyers. Make a written schedule in advance, before emotion takes over and you’re tempted to dig your heels in.

Offering Incentives to Hasten a Sale

Sometimes cash incentives are as effective as lowering the price, especially in the lower price range where buyers may be “cash poor.” You may offer to pay some or all of a buyer’s closing costs and discount points required by the buyer’s lending institution.

If you haven’t had much traffic through your house and you’re in a hurry to sell, you may want to add the offer of a bonus to the selling broker, in addition to their commission. An example of the wording for such an offer may be “to the broker who brings a successful offer before Christmas.”

Estimating Net Proceeds

Once you’ve been given an estimate of market value by your Realtor, you can get a rough idea of how much cash you might walk away with when the sale is completed. This can be particularly useful when you start looking for another home to buy.

To estimate your net proceeds, from the estimated sales amount, subtract the applicable costs in the three sections outlined below: seller’s costs, buyer’s/seller’s costs and closing costs.

Seller’s Costs: Subtract the following costs as applicable.

  • payoff figure on your present loan(s)
  • broker’s commission
  • prepayment penalty on your mortgage
  • attorney’s fees
  • unpaid property taxes

Buyer’s/Seller’s Costs: Additionally, your Realtor can tell you whether local customs or rules dictate whether the buyer or seller pays for the items listed below. Subtract the following costs, as applicable.

  • title insurance premium
  • transfer taxes
  • survey fees
  • inspections and repairs for termites, etc.
  • recording fees
  • Homeowner Association transfer fees and document preparation
  • home protection plan
  • natural hazard disclosure report

Closing Costs: As far as closing costs are concerned, you and your eventual buyer may agree on any arrangement that suits you, no matter what local practice dictates. Your Realtor will assist you in estimating what your final closing costs will be.

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