When it’s time to sell your home, pricing your home competitively is one of the most important things to get right from the beginning. We have seen dramatic value changes in real estate over the last dozen years. We’ve had a recovery of sorts, but determining today’s value can be a little tricky. Pricing your home correctly from the beginning of your listing is crucial, no matter what kind of market a seller deals with, buyer’s market or seller’s market.
The Importance of Time On Market
The temptation for many sellers is to overprice their home and make decreases in price as time on the market increases. Many sellers believe they must have “negotiating room“. Or, they often want to “test the market”. Unfortunately, thees strategies usually backfire. Sellers don’t realize the list price is too high until much later, after you lose valuable time on the market. This chart shows a basic truth about the number of showings as the time on the market increases:
The majority of showings on a home for sale occur in the first 20 to 30 days of the listing.
After that initial buzz, the number of views drops significantly.
After a price reduction, seller’s will often see another, smaller bump in traffic. The problem with this strategy is that as time on market accrues, even with a price reduction, the home is in danger of becoming what we call, stigmatized.
Remember, buyers are looking at several homes in the same price range, comparing features to similarly priced homes. When they see a listing that has been on the market for a longer time than the rest of the homes they’ve seen, they naturally question why. “What’s wrong with this house that it hasn’t sold yet?” All of this data is available to buyers, and a good buyer’s agent is explaining the data to their buyers.
You can see that the first 30 days is very important to attract the right buyer to the home.
An Important Pricing Truth:
When you first list your home for sale, that initial marketing time is crucial. The more you overprice, the fewer buyers will come to see it. Remember, buyers have all the data in their hands in today’s real estate markets. Combine fewer showings with optimal showing time, and you can see how a seller can miss out on the best marketing time by overpricing their home from the start.
The magic space for pricing is at market. An experienced real estate agent is in the market daily, familiarizing themselves with the inventory. To have the greatest results, ie. “sell in the shortest amount of time for the highest amount of money”, you want to be priced NO MORE than 5% above market. You want to get as close to the real market value as possible.
How to know the market value?
Good question! An experience Realtor® will do a Comparative Market Analysis (CMA) for you. A CMA will take into consideration these four market trends:
- Recently Sold Homes: comparable homes that have sold within the last six months.
- Pending Home Sales: homes that are currently under contract but have not sold. Time on market for these homes is an important indicator of recent selling trends.
- Active Listings: These listings matter only to the extent that they are your competition for buyers.
- Off-market/Withdraw/Canceled/Expired Listings: Usually, the reason homes are removed from the market is because they were priced too high. This gives us insight for our pricing strategy.
What About Pricing Your Home Below Market Value?
Pricing a home below market is a strategy that agents use sometimes. In the right market, at the right time, this can generate multiple offers and trigger a bidding war. Sometimes it can backfire. If your agent suggests this strategy, make sure they explain it fully and you understand and are comfortable with it.
Pricing your home right from the start is one of the legs of what we often refer to as the “three-legged stool” of selling a home…pricing, condition and marketing. When the stars align, sellers have success! Unfortunately, we often see the weakest leg of the stool is pricing, and that is often due to overpricing.
Important Historic Real Estate Market Trends
It is important to understand the recent history of home values in your market. What happens nationally, or in the market across the state is of no importance. All real estate is local.
Knowing where the local market has been will help tremendously in knowing where it is heading. Take for instance, this chart put together by a local appraiser, Wayne Six, with Six and Associates:
What can we surmise about local home values from this historic chart?
- Homes valued below $500,000 are appreciating faster than homes valued above $500,000…on average.
- Some homeowners have not seen their home values increase to the point where their home is worth what they paid for it.
- Home values, overall, are appreciating at a healthy pace. Appreciation of 85% over four years is NOT healthy…obviously, not sustainable.
Pricing Your Home Right From the Start
Here are just six of the disappointments you’ll find with an overpriced house:
- A buyers’ response to your ad will probably be slow, since they most likely recognize overpricing. Remember, people buy by comparing like homes, and if they are working with a buyer’s agent, the agent is giving them recent statistics.
- Buyers who are interested may be the wrong ones because they’re looking for a home priced the same as yours – but with MORE features. You’ll be missing the buyers who could and/or would buy your house.
- Your overpriced home will help buyers make a decision on other homes that are priced fairly. You’ll be the unfortunate home seller that sells your neighbor’s home.
- Very few buyers will even make an offer on an overpriced home. Even in a seller’s market like we see today [low inventory with healthy demand] buyer’s are sensitive to over paying.
- After your house has been on the market for several months, buyers will notice the number of days on market and may assume there is something wrong with your house. After a house becomes “stale” in the psychology of buyers’ thinking, the seller will most likely end up lowering the price to a point less than they could have gotten if they’d priced the home correctly when first listed. This is called chasing the market down.
- If you do find a buyer at your price, the appraisal still has to work; the house has to appraise for the contracted price, or the mortgage lender will not lend the money to the buyer. The contract will have to be re-negotiated to make the deal work.
What can you do to solve the pricing issue? Work with an experienced real estate agent who knows the market in your neighborhood. Your agent will provide you with a valuable CMA based on the dynamics in your market. Take advantage of the research and advice your real estate agent can offer, and you’ll be sure to avoid the pitfalls of an overpriced home.
While it’s true that finding the right listing price is not entirely a science, knowing the right target range is the aim. Pricing the home within a range close to the market value for comparable homes will be a great strategy. As the chart above shows, you will attract the largest number of likely buyers. You will most likely meet the two important goals of 1. getting the right buyers in the door, and 2. taking advantage of the optimal marketing time.
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Chris Highland, Broker eXp Realty Maryland
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