How to Determine List Price
Q: How can I really determine what my home is worth? An online estimate website says my property is worth $350,000, but my agent says it’s worth only $300,000! I’m listed at $325,000, and my price is comparable to other similar listings. I really wonder about agents’ motivations, if they’re pricing to get an easy sale. What’s your input on this?
This is a great scenario to answer all the issues that come up when we talk about determining a list price. Let me address them one at a time… .
A. Online estimates and virtual appraisals have limitations. Does anyone remember the class-action lawsuit against Zillow a few years ago? Buyers and sellers sued because of inaccurate “zestimates”, believing that they had suffered financial loss for selling their homes for less than they were actually worth because of zestimates.
Recently, Zillow zestimates have been the topic of many blog posts and news articles. The Washington Post published a recent article following an in-depth study by McEnearney Associates, of Washington D.C. They found that
“The Zestimate is within 5 percent of the actual sales price roughly half the time… As real estate agents, if we got within 5 percent of the value of a home that infrequently, we’d be out of business. So if consumers want to base their valuation of a home purchase or sale on what they find on the Internet, we suggest they take out a coin and flip it. Heads — that value is within 5 percent (high or low) of what the home is actually worth. Tails — that value could be 10 percent, 20 percent or more off target. ” ~ David Howell, executive vice president and chief information officer at McEnearney Associates
Zillow publishes statistics that show their estimates being limited and very generalized, even though they claim they are as accurate as any other valuation. They use mathematical algorithms based on public data. The data is missing the local nuances that can only be applied by local neighborhood experts. (**These websites have lots of value for consumers, I’m not disparaging them in any way, they just don’t take the place of a local, experienced Realtor®)
* For additional reading about Zestimates, a great article from one of my real estate colleagues: Debbie Drummond, Las Vegas Home Pro – Are Zillow’s Las Vegas Home Value Estimates Accurate?
The Market Dictates Values
B. The market determines the price. Even if you price your home in a comparable range with others on the market, this does not guarantee your home is properly priced for the market. The real evidence of what a home will sell for is in the recently sold homes, not in the homes that are currently listed. Although those list prices are important to take into consideration, they don’t tell us what the homes actually sell for.
The other truth that is sometimes hard to swallow: buyers determine what a home is worth. If you price your home based on anyone’s opinion, a Realtor, an appraiser, your own gut, or the competition… and you don’t get an offer from a buyer… your home is not worth that amount in the current market.
*For Additional Reading: Xavier DeBuck, Johannesburg Realtor – Why Setting the List Price Too High Does Not Work
C. It’s not in any agent’s best interest (not to mention the seller) to get a listing by promising a higher price than what they believe the market will bear. It may happen, but it’s not very wise. The house that is overpriced will sit on the market without showings or interest and the homeowner will get frustrated and blame the agent.
*For Additional Reading: Kyle Hiscock, Rochester NY Agent – Real Estate Pricing Mistakes that Sellers Need to Avoid
Here is my favorite explanation: If I get someone to buy a home for 10,000 more, I’ll make an extra $250 to $300. In truth, I’m not willing to sour the
relationship when they find out, and they eventually will. Not for $300. The opposite is also true, if I undersold a home by $10,000, there is no benefit to me. The old adage really does apply here:
“If I give you stellar service and you are happy, you’ll probably tell 2 people about me. If I give you bad service, you’ll probably tell 100 people about it!”
Not worth it. At the Highland Group, any given year, 75% to 80% of our business comes from referrals and repeat clients. A good reputation is worth so much more than $300:)
A True Story Of An Underpriced Home
Unfortunately, but rarely, we see a home that is underpriced for the market. It happened recently with some friends who sold their home with a relative; the relative sold real estate in another part of the state and was not familiar with our Frederick real estate market. We felt the home was underpriced by about $25,000. The homeowners got an offer within 24 hours of listing the home. A cash offer from an investor. They took the offer.
It actually hurts us to tell the story, as these were friends. When this scenario happens, it is usually because the agent doesn’t know what they are doing, not because they want a sure, quick sale. This illustrates the point that you must choose your listing agent based on their experience and professionalism, not based on family loyalties.
* For Additonal Reading: An In-Depth Article by Lynn Pineda, Coral Springs Fl – Why Should I Pick You To Sell My Home?
How to be 100% sure?
The only way be 100% sure of what your home is worth… is to sell it. I know… not what you wanted to hear. Some homes are very easy to find comparable sales: homes that are one of many in a neighborhood and of which there have been several sold in the recent 3 to 6 months. But for homes that don’t have close comparisons or that haven’t had many comparable homes sell in recent months, pricing the home correctly for the market takes local experience, and some savvy.
The best way to position your home on the market is to think in terms of a range, from a top price to a low price. Then you have to be flexible, listen to the feedback from other agents and their buyers, and adjust the price strategically. You don’t want to linger out on the market too long with an overpriced home.
* For Additional reading, a thorough article by Bill Gassett, Metrowest MA Realtor: What Happens When You Price Your Home Incorrectly
“That’s why we say “selling or buying a home is a process, not an event.”
Sometimes a home that is truly unique will need to have an appraisal to derive a true value. Even then, sellers must remember that a home is only worth what a buyer will pay for it. The best valuations still need to be tested in the market. Determining the right list price for a home is integral to the entire marketing strategy. It often takes more art than science. It takes experience.
Does your agent have the experience or the resources of an experienced team to help you sell your biggest investment for the best price and in the least amount of time for your market?
If you’d like a CMA, Comparative Market Analysis, to find out what your home might be worth, no obligation, contact us, The Highland Group is happy to help. _____________________________________________________________