How to Price Your Home For Sale

Home is where the heart is, but it can also be where the anxiety and stress is if you're planning on selling anytime soon.

Although selling your home can be incredibly stressful, with the right guidance and support it can be (and should be) a smooth, exciting, and lucrative experience.

One of the biggest sources of anxiety and stress come while trying to arrive at...and agree on...your home's list price.  Below I share a number of ideas, thoughts, strategies, and points of view that will leave you best equipped to tackle this seemingly daunting task.  Let's call 'em "the Dos and Don'ts of Home Pricing."

DOs

Consider your motivation and moving time frame
Do you have a new job that you're moving too?  How about kids starting at a new school? Be at peace with the reality of your unique set of circumstances.  Be realistic.  Do you really have time to 'test' the absolute limits of the market, or are you serious about making your move?

Consider all of three of these points of view when determining your list price.

Wear three sets of glasses!

• From A Buyers Perspective: You HAVE TO think from your buyer's point of view. How do they look for a home?  If you were a buyer...what would attract you? Your buyers are spending countless hours on any number of ubiquitous real estate apps or websites. Remember that.  In fact, your buyers' Realtor is doing his or her own version of the same process directly on MLS. 

• From the Buyers' Realtor's Perspective: You have to think about your buyers' Realtor's point of view.  Your buyers' agent is actually the one that influences the buyer.  Think about it like this.  Most parents don't go to the store with the idea of buying Captain Crunch cereal and Sponge Bob Krabby Patties!  But kids influence their parents' actions. Influencing your buyer is fantastic, but in if you influence your buyers' Realtor, the buyer's will be more prone to take action.

• Ah yes; From the Appraiser's Perspective. You have to think from the appraiser's point of view as well! If you've overpriced your house and you're still fortunate enough to find a buyer to pay that inflated price, the appraiser will probably pop that bubble, bringing you all back to the negotiating table. 

Rely on clearly understood "Comps."
Comparative Market Analysis, CMA, or "Comps." Using the following criteria will help establish a realistic starting point:

• City, town, or area: Outline your specific development on the map and use homes that are 'model matches' of your particular house.  If you can't do that, start with a half-mile radius from your home.
• + or - 10 years from the year your home was built
• + or - 10% of the square footage of the home
• + or - 20-30% of the square footage of your lot
• # of bedrooms...until you get to 5, then simply use 4+

This is a sound starting point. You'll want to find at least 5 properties that are very similar in kind to yours that have closed recently (within the last 90-180 days). If you don't have 5, broaden your search criteria. However, the less refined the search criteria, the less dependable your comp data will be.
Look at the median number of days homes are on the market; DOM:
Look at homes that have been on the market for 90 days or more without selling!  As of the date of this post, the average DOM for local homes is 41 days. If your "Comp" is still on the market after 90...there's a good chance that it's overpriced. You might not weight that comparable home as heavily as another.

What time of year will you be selling?
Ah, spring is here. Spring is considered the best season to sell a home since families are trying to get situated before the start of the next school year. However, fall is a close second since it comes right after the quiet days of summer when most people are away on vacation. Winter is usually the worst season -- especially in areas where it snows -- but also because of the Thanksgiving, Christmas, and New Year's holidays when people's minds are on socializing, not buying or selling a home. Note: This can be an excellent time to buy!

Look at inventory
Inventory simply means the current number of comparable homes for sale.  This is right out of ECON 101. Supply & Demand are inversely related.  Simplified...lots of inventory means that each home is worth less, and little inventory means more buyers bidding on each house, driving up prices.  What's your current inventory level? Are there more or fewer homes than there were 3 months ago? Is inventory increasing or decreasing?

Inventory above shows a 37% decrease over 2 years.  This reduces supply and ought to increase prices with all other variables remaining equal.

Consider the arbitrary but psychologically charged price caps
Although these numbers are truly arbitrary, we live in a society where they actually matter! We don't see a candy bar on the shelf for $1.  It's on sale for 99¢.  Billions; probably trillions of dollars have been spent by marketers around the world verifying that yes, we actually DO think that 99¢ is less than $1.  What does this mean for your home's list price? Don't list your home for $510,000.  List it for $499,900.  At $510,000 you'll miss ALL of the buyers who are willing and able to pay that much, but they never even saw your house because their search criteria was randomly capped at $500,000! On the contrary, if your home is undervalued at $499,900, it will receive multiple offers and likely bid up to or even beyond your estimated value of $510,000.  If that strategy doesn't actually work...guess what...your house wasn't worth $510,000 in the first place.

Look at Current Mortgage Interest rates
Interest rates change buyers' behavior

Low rates = More Buyers = Higher Demand = Higher Prices

Stable rates = Current market data becomes even more relevant

High rates = Fewer Buyers = Lower Demand = Lower Prices

Look at expired and cancelled listings
Almost nobody looks at these numbers, but they tell the rest of the story. This is a look into the recent past.  If a home didn't sell, it's a virtual certainty that it was overpriced. Keep that in mind when pricing your home.

Look at List Price vs Sold Price
This adds credibility to your "Comp" data.  It shows recent trends with regard to homes selling above or below their initial asking price.  For example: Over the past 90 days 144 homes sold.  Their combined list price was X and their total sold price is Y. Comparing those two numbers illustrates a trend of overpricing vs. under-pricing.  It usually only varies by about 4%, but can really help guide you in terms of direction.

Contact a Local Area Expert
The “art” of choosing the right price for your home comes after you've pulled the data you need to make an educated choice.  Your Realtor's experience & knowledge of your local market is not a logarithm or spreadsheet.  It's expertise.  Chef Ramsay can't tell you exactly how much salt to use, he tastes...and makes a judgement based on decades of experience.  Local experts intimately know things that home sellers have likely never even thought about, like...

• Which HOA is having financial troubles or is in litigation? 
• Which side of the street sells for more money; the hill-side, or the golf-course side? 
• Which developments have excessive special tax assessments or Mello Roos? 
• Did the school district change its boundaries recently, or is it going to? 
• What is the city doing with that empty lot on the corner? 
• Have you seen that updated FEMA Flood Map? 
• Are there any short-sales or bank owned homes left in your area?  

ALL of this knowledge comes from your Realtor's time and commitment. It's knowledge that your iPhone app and your aunt Mable who's a Realtor from out of town couldn't possibly know.

DON'Ts

DON'T look at your Zillow Zestimate as anything but a generalization

Ethically, Zillow notes that Zestimates should not be used for pricing a home.
Go ahead, use this figure as your starting point, but don't take it as a fact. These "Zestimates" are admittedly inaccurate.  In fact, Zillow  advertised, to Realtors, a free downloadable PDF file on how to overcome objections to their own data.  These Zestimates are virtually always wrong.  Sadly, sometimes they're HORRIBLY wrong!

DON'T consider what you paid for your home
Maybe you still owe $500,000 on a $280,000 house. Maybe you inherited the home and paid nothing! The only thing that matters is your home's value right now, not what you paid or what you owe.

DON'T listen to the News; both local & national
Ignore the News. No matter how "local" the news claims to be, it's not local enough to do anything other than create hype or scare the pants off of you.  That's what the News gets paid to do; freak you out.  What's happening within a major metropolitan area is rarely what's happening in your town...much less on your street.  Don't believe the hype; good, bad, or indifferent.

DON'T put too much weight into what is currently on the market.
Sure, those homes might be your competition, but they also could have been on the market and are never going to sell!  I recently saw a listing that had been on the market for 985 days.  How relevant is that?  Remember, what your neighbor 'wants' for his house and your other neighbor 'wants' for hers is no guarantee that either of them will get it. Yes, look at the active market, but more importantly look at what has closed recently (lets call 'recently'...90 days or so depending on location and price-point).

I encourage my clients to list at absolutely the most competitive price possible. This creates the highest number of showings. It also creates a bit of a 'feeding frenzy' which plants a seed of urgency within your buyers. Buyers usually have lots of options, and they won't have time to look into all of them. Price is always a motivator for prospective buyers and their Realtors, so let's make the list price an intelligent and competitive one. Consider best-case and worst-case: If the offer you receive is too low, you can accept it or make a counteroffer.  If your price is too high...you'll never get an offer to accept or counter.  That idea alone illustrates the importance of not overpricing your house.

Having a stale, overpriced house on the market is ineffective, inefficient, and frankly...embarrassing for the sellers and their Realtor.  When your home is priced right...it feels right, and the activity you'll see proves that it is.  THAT is when you know you hit the sweet spot.

RESN