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The first step for many home sellers is to determine what their home is worth as they get ready to put the home on the market. The information below will help you weigh the factors involved with pricing your home for market.
The Effects of Overpricing
Real estate agents and appraisers look at the recent sales of comparable houses to determine the fair market value of your home. Fair market value is:
the most probable price which a property would bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming that price is not affected by undue stimulus
Comparable houses will be similar in size and construction, lot size, overall condition, numbers of bedrooms and baths, etc. If you overprice your home at the outset you miss out on that window of opportunity when your house appears as a ``new" listing and will attract the most attention from buyers and real estate agents.
The longer your house sits on the market, the more likely some buyer will think, "Gee, there must be something really wrong with that house." Testing the market at a higher price might cause you to lose out on some qualified buyers as they skip over yours in their quest for a good deal.
As a general rule, houses listed for more than 10% over the average selling price for a comparable home are overpriced. Remember that "asking" and "selling" prices reflect the market and homes generally sell for 94-97% of asking. Listing your house at just 5% above current market value gives it an advantage over the homes priced over 10% above market value. How long does it take for the average home to sell? The Realtors call this statistic "days on market". How many homes are currently on the market, commonly referred to as "inventory". How about the time of year?
And are you in an rising or falling market? Have you checked out the recent sales in your neighborhood? How about calling Realtors or the state or local association for statistics on typical "days on market"?
Market Conditions
Understanding market conditions is critical to successfully pricing your home. Homes sell quickly in the fast pace of a seller's market because there is little in the way of "inventory" to pick from. Houses suffering from problems like highway noise, bad floor plans, unusual design, outdated kitchens and baths can benefit from the shortage and will be easier to sell during this time. A slow market puts the buyers in the drivers' seats and will require even more effort on your part to make your home stand out.
Buyer's and Seller's Markets are just as you would guess... a Buyer's Market is favorable to buyers and a Seller's Market favorable to sellers. In general, when "days on market" is less than 30 days, it's a strong seller's market and you may be faced with multiple offers on your home which could possibly create a bidding war. Most homeowners quickly realize that they will face the same situation if they are buying in the same area, so the joy of the discovery is usually short-lived.
On the other hand, in a slow-moving buyer's market, homes may get re-listed with several agents as sellers get discouraged or want to make their look like a 'new' listing on the Multiple Listing Service (MLS). When the marketing time is over 75 days, you are in a buyer's market which means there are more homes competing with yours on the market. You may have to offer price reductions and other concessions to get your home sold.
Another criterion used to determine the market condition is the 'sale to list price ratio'. Nationally, homes generally sell between 94 - 97% of asking price, depending on the market.
Find out how much of asking prices homes are selling for in your marketplace. Ask the professionals but keep in mind that they sometimes might put a positive spin on the data to get a listing. It is better to ask the hard number questions (What is the average DAYS ON MARKET? What is the SALE TO LIST PRICE RATIO IN THIS TOWN? instead of "How's the Market?"
Time of Year
The period from late January to early May marks the first peak of the home-selling season. This is most active period of the year for several reasons. School schedules, tax considerations, and vacations influence buyers and sellers' timing decisions. The usual flurry of activity in the spring market also draws lots of buyers and consequently, more sellers to marketplace. The most buyers and most homes of the year make the first peak the best time to sell.
After we devote our summer months to outdoor fun and vacations, the second peak begins at Labor Day. Through November we can expect to see the marketplace strong when it then goes into hibernation for the holidays. (Note: some resort areas have different seasonal schedules.)
Other Considerations that Affect Price
The timing of your closing date can affect your ultimate gain or loss on the sale of your home. Since most real estate transactions close in 60 to 90 days, an earlier close could save you condo fees, mortgage, utilities and tax payments. If you have already purchased another home (a situation most of us don't want to be in!!), an earlier close can be a saving grace.
On the other hand, if you don't have a place to go to, make sure you determine the cost of short term housing and the availability. The demand in our economically booming state is frequently greater than the supply, and the prices are at an all-time high.
Take Advantage if your home is in "High Demand"
High demand listings are in good locations and desirable communities, have good schools, retail services, highway access and are in move-in condition. Make this information available to buyers by having printouts near the sign-in book. Don't assume that everyone knows how great the schools are or that an agent will share the information.
Know Your Goals and Limits
You should spend some time thinking about :
- your bottom price
- your range of closing dates
- what items are included in the sale and,
- additional items and fixtures you can include with the house
When it comes time to negotiate, and, yes, everyone expects to negotiate on price, you can stay calm knowing that you have your pricing strategy in place.
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