Setting a reasonable price for your home is one of the most difficult decisions you make before selling it. Remember, once your home is on the market, it becomes a "product", compared to similar products by Realtors® and buyers alike.
Pricing a Luxury Home or homes with acreage is no different from pricing any home - except that there are fewer buyers in the upper price ranges, so accurate pricing is even more important.
- Factors to Consider when setting a price
- Setting a price: The Comparative Market Analysis (CMA)
- What if I price my property too high?
- Personal Property
Price and other factors combine to determine how long your house will remain on the market. With favorable factors, your house will sell quickly. With unfavorable factors, your house may stay on the market for months, or not sell at all. These factor include: Location, Condition of home and property, Terms, The Market ("Market Value"), and Price.
Notice that these conditions don't reflect your own emotional attachment to your property. Buyers don't place monetary value on emotions - the tree in the front yard was planted when Uncle Berney was born, or the grape arbor was expanded after you won the lottery. Sellers who price their property emotionally are often dissappointed when it doesn't sell.
- Location: "Location, Location, Location" is the appraiser's favorite expression. The best house in the worst location will bring less than the same house in a desirable location. You cannot "remedy" location, so you must reflect the property's location in your price. Next to the railroad tracks, overlooking the river, a lake view - all have a bearing on price.
- Condition: Condition affects pricing differently: a house with dated carpeting or a leaking roof will bring less than the same house in tip-top condition. You have a choice, though - reflect the condition in your price ("fixer"), recognize the problem in the conditions of the sale (e.g. "$3,000 roof allowance"), or remedy the problem before you put the house on the market.
- Terms: Terms may also affect how quickly your property sells and for how much. "Owner terms" frequently gets you more for your property than conventional financing because you offer buyers more flexibility. A hard-to-sell property may be even harder (or impossible) to sell without some owner terms. More financing options will attract more potential buyers.
- The Market: Your home's "Market Value" is affected by the actual recent selling prices of homes similar to yours. The Realtor® uses the Comparative Market Analysis (CMA) to establish this value.
- Price: Price is a reflection of the above factors combined with your desire to sell. If you are "motivated", you may price your property lower than market value so that it will sell quickly. If you are not "motivated", you may price your property higher than market value and be willing to wait for the "perfect buyer" (or not sell your property at all).
Keep in mind that most Realtors® work on commission. Most pay advertising costs out their own pockets - newspaper ads, magazine ads, Internet ads, and open houses. If they sell your home, they get paid and recoup their investment. If your property doesn't sell, or if you relist it later with a different Realtor®, your agent usually can't recoup these costs from you.
Some Realtors® accept overpriced listings (this is called "buying the listing"). The reality is that your Realtor®, regardless of why they accepted the overpriced listing, will probably provide only minimal advertising and try to reduce other out of pocket costs as well. This tends to reduce the effectiveness of your marketing campaign even further!
Appraisers and Realtors® alike establish the approximate value of your property by using "the Comparative Market Analysis", otherwise known as "the CMA". The estimated selling price for your home is arrived at by comparing similar properties (ideally sold within the last six months) using square footage, location, general condition, amenities and size of the property.
Additions and Subtractions
Realtors® and appraisers commonly add or subtract value depending on location and amenities. For example, you might add $X for a new roof, or substract $Y if your home does not have a garage. The actual value of additions/subtractions is related to local market conditions. Other examples:
- Additions: pool, 3+ car garage, quality outbuildings, above average landscaping;
- Subtractions: roof condition, deferred maintenance, lack of garage and other deficiencies.
Although it may not seem disasterous to price your home "above market" ("I can always lower the price later"), you may inadvertently create conditions that keep your property from selling, even at an agreeably lower price later on.
- The first two weeks a home is on the market is generally the most active. Realtors® want to see new properties quickly so that they will have information for their buyers. Because Realtors® are in the business to know market values and to represent their buyers, they will usually not show a property once they realize it is not at market value (i.e. overpriced).
- They would never allow their buyer to pay an appraisal fee ($350+) for property that they know won't appraise close to asking price.
- The Realtor® will not consider the property as saleable and therefore may not consider it until it becomes priced so low that it becomes a "bargain" buy.
- Therefore, "ready buyers" will not be shown the property.
In the Real Estate business, most overpriced listings are referred to as "Owner Set Price!" Realtors® feel that the sellers of over market value properties are not serious sellers and have no real need or motivation to sell - showing the property would not be a profitable use of their time and efforts.
- Buyers will watch your house as the price falls and wonder, "Can I get it for still less?" even after the price drops into market range. If a property stays on the market too long, it becomes "shop worn" and people start thinking:
- there is something wrong with it, or
- it is still priced over market value.
A concept in peoples minds that is hard to change once the concept is there!
- If your property is in the "country" or hard to get to, Realtors® have to drive to find out if the property is suitable for their clients. Once they see that it is not in saleable range, they will probably not be back. They may also be put off about the long drive for nothing. Once the property is at market value, these Realtors® wont care, and still wont consider the property for their buyers.
- Finally, most cases show that sellers eventually get less for their properties than if they would have priced it correctly in the first place! "Price Reductions" invite low-ball offers and folks who think the sellers must be in a real pickle to sell.
Personal property should be excluded from the selling price. Hot tubs, farm equipment, refrigerators, curtains, and others items not built in or bolted down won't be included in an appraisal. Therefore, including their value with your property increases its price without increasing its value!
It's better to price your real property without the personal property - take it with you, sell it separately or include it as a perk! List personal items separately: "Hot Tub available for $2,000" or "All window coverings excluded" or "Curtains and refrigerator included".
The main point to remember is that appraisers and Realtors® alike are interested in the value of your home, not the value of your curtains.