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How to Price Real Estate

How to Price Real Estate

Today we are excited to welcome back Ashley Garner as our guest writer today. Ashley has been a broker for over 20 years in the Wilmington, NC area. – The KCM Crew

1963 Chevrolet CorvetteLocation may have the most effect on value but Price is without question the most important factor controlling the sale of real estate.  Anything will sell anytime, how long will it take depends on the price.

Think about it this way – you may really want to buy a car for your collection and your favorite happens to be a 1963 Corvette.  So you hear about one for sale, in mint condition, across town but the only problem is the price, the owner is asking $150,000!  Well, although you really, really want a mint condition 1963 Corvette, there is no way you will pay anywhere close to $150,000. In fact, you know that the most a 1963 Corvette has ever sold for is about $200,000 and that was for a very rare model, which this one is not.

Because you are a bit obsessed with owning one of these cars you spend almost all of your free time, and some of the time you should be working, searching the internet for available cars.  Through this exhaustive search you have become somewhat of an expert on the values of 1963 Corvettes, especially in your town.  You happen to know that the particular model for sale across town is worth about $95,000…maybe $100,000.  In fact, if the asking price was $100,000 or even $110,000 you would’ve driven over there today with your checkbook and driven home in a 1963 Corvette!

So why don’t you go make an offer?  Well, let’s face it when you see a price that is so high compared to the actual value it makes you think that the seller is either difficult to deal with and is out of touch with reality or that he must not really want to sell the car. Instead, he is just fishing for the one fool in the world that will pay $150,000 for a car that is worth $95,000.  So you don’t even go look at it or call for more information…you just keep searching the various websites to find the car of your dreams.

Yes, you guessed it – the Corvette in this example actually represents your home or other real estate you might be trying to sell.  (in fact it represents any item that can be bought and sold).

Wiggle room = Bad idea

Most sellers think that it is necessary to “leave a little wiggle room” in the price.  They think this because they think that all buyers will make aggressively low offers…no matter what the asking price.  WRONG!!

Buyers pay the fair market value …in other words they will pay you what it is worth!  Your job is to find out what it is worth and price it at or near that value.

This is where brokers and/or appraisers come into the picture.  The right way to price your property is to have a professional REALTOR/broker or appraiser prepare a CMA (Comparative Market Analysis) on your property.  A CMA involves finding recent sales of similar properties, adjusting for any differences, to arrive at a current market value of your property.  Once you have this value, you should have your broker set the asking price no more than 3% to 5% higher than that current market value.

If you do this, your property will sell quickly for a price equal to exactly what it is worth or higher!   Buyers as a general rule DO NOT make “low-ball” offers, there are some rare occasions when that happens but the vast majority of initial offers are 5% or less below asking price.

If sellers price their property correctly, the buyers will know it immediately because, just like in the Corvette example, buyers spend every spare moment searching the internet for a home. They have made themselves experts on the market value of the particular type of home in the particular area they desire.  For this reason the buyer also knows when a property is overpriced.  Most buyers will not even go look at a property that is overpriced. They say to themselves “why bother?” They assume that the seller is unreasonable and/or is not truly interested in selling the property.

Yesterday, the Buyer’s Specialist that works for my team and I were showing a house to some buyers who were very motivated had already decided on the neighborhood.  The house was well within their price range and met every one of their criteria.  As we stood in the kitchen discussing what price we should offer, we found ourselves drawn to the fact that the house had been on and off of the market for the last four years!

The conversation immediately turned to “what is wrong with this house?”   It turns out that the house hasn’t sold because it was severely overpriced most of that 4 years. It happens to be well priced now but the stigma it carries because of the lengthy time on the market will likely result in it selling for less than it is really worth.

Moral of this whole story is – buyers will pay what it is worth – Seller’s job is to find out what it is worth and set the asking price 3%-5% higher than that number…then sit and wait for the offers to roll in.

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2 replies
  1. Bill Silver
    Bill Silver says:

    I agree with most of what you said, but do have some thoughts that are somewhat different.

    I sell on Cape Cod, and here the #1 factor that determines the value of a house is proximity to water. Identical houses may sell for $400K in one location, $800K closer to the water, $1,8Mil if they are water view, and $3.6Mil if they are on the water.

    Presentation (think staging) and promotion (think marketing) are also significant indicators in what a house will sell for and especially how fast it will sell.

    There are only two mistakes that sellers can make when deciding on what price to list their house: Too HIGH — or Too LOW. So the seller’s strategy also must be factored into the price. Nothing is easier than getting multiple offers on a house in a few days. Just price the house so low that it is a deal that buyers can’t refuse. And, sometimes that is the right thing to do for a seller. But, especially on Cape Cod, many sellers don’t need to sell their house quickly, they can wait, they can rent. They will sell if they can get a price they like, but they don’t want to sell at a fire sale price. Each seller is different.

    I show sellers how competitive their house will be at different price points — all the way from 3 days to maybe never (I use a List Price Positioning Sheet). Sellers always GET IT, and can then make informed decisions.

    If they choose to go with a price on the higher side, then pre-agreed-upon price reductions are always something to try to get. My data shows that about 90% of all houses are under agreement within 60-90 days of their LAST PRICE (which may be the original price). What this means is that if a house has been on the market longer than this time frame then the odds of it selling at the current price are NOT ZERO but NOT GOOD either. When prices are going DOWN, then their odds really are zero.

    But, contrary to the widely held opinion that a house that has been on the market a long time will have a hard time being sold, what is really the case is that once the price is reduced (at least 2.5%) then the clock resets and the 60-90 countdown starts over. How long the house has been on the market overall is much less relevant.

    Anyway, that’s my experience.

  2. John Sheldon
    John Sheldon says:

    Well, certainly great article and good response. However, I’d also like to add my two cents here.

    As I often say, real estate is an extremely local business and where I am right now, if anything is priced right and it’s in good condition, it gets an offer almost immediately. And, sometimes, brokers are suggesting that people don’t overprice their property by 3%-5% but underprice their property by 3%-5% because that creates a bidding war. And I’ve seen it over and over again. Now, once again, it’s a very local business and I’m talking about the market right now in the past few months in Portland, Oregon.

    Thanks very much.


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