The longer a property is on the market, the lower the sales price. Do you know how to get the price right?
Last year, a typical home was on the market for 4 weeks and sold for 98% of the listing price, according to the National Association of REALTORS®. These days, buyers have done their homework; they know the fair market price of the type of house they want. An overpriced house can scare them away.
It’s easy to see why it’s so important to set the best price from the start.
What’s a Price Based On?
The listing agent will conduct a comparative market analysis, which compares recently sold or listed houses in the neighborhood with the house for sale (the “subject property”) to determine a fair, competitive asking price.
Listing prices should not be based on the:
- Balance of the seller’s mortgage
- Price the seller paid
- Profit the seller wants
- Tax value
- Insurance replacement cost
Listing prices should be based on the:
- Recent sale prices of similar near-by houses
- Price of similar houses currently on the market
- Difference between list and sales prices on recently sold houses
- Number of days similar houses sat on the market at certain prices
A comparative market analysis applies the appraisal principle of substitution: The price a buyer is willing to pay for a property is only as high as the cost of buying a similar property. This creates a ceiling of value for like properties.
So how do the seller and listing agent arrive at a final listing price? First, the agent will learn as much about the property as possible from the seller and government and real estate web sites. Then the CMA begins:
Research Similar Properties in the Area
The agent will search a database of local properties for sale, called a multiple listing service (MLS), for similar houses in the area. She might also check county appraisal websites and real estate Web sites like Zillow, Trulia.com, and Redfin. The agent selects several houses that are as similar as possible to the subject property. The comaparables should be within a few hundred square feet and construced within about ten years of the subject property.
Then collect information about the comparables such as:
- Square footage
- Lot size
Compare and Adjust
Next, you compare the features of the comparables with the house’s features.
- If the comparable has a feature that the subject property lacks, subtract that value from the comparable’s sale price.
- If the subject property has a feature that the comparable property lacks, add the value to the comparable.
Remember: All adjustments are made to the comparable price, not the subject property.
Use this formula to find the adjusted sales price:
Comparable Purchase Price + or – Adjustments = Subject Property Price/value
The adjusted sales prices for each comaparable provide a range to consider.
Decide on the Listing Price
Now that you’ve got a range of probable market values, it’s time to settle on one listing price. Some considerations include:
- Check the local market: Look at market trends, where are prices heading, number of houses on the market, and days on the market. This information points you in the right direction. In a strong market, the agent may recommend a number at the upper end of the range; in a buyer’s market and/or if the seller needs to sell fast, pricing at the lower end might make more sense.
- Price it to be found: Go with $300,000 not $299,000 or $301,000. Consider how buyers shop in the internet age. Buyers may search for houses by price range, for example $200,000 to $250,000, and miss your $199,900 house.
- Stick to the zeros: Odd prices like $290,777 are pointless and only draw unwanted attention to the seller.
- Have a back-up plan: Some sellers with unrealistic expectations may insist on asking top dollar for their home. Have a plan for when it fails to sell at the higher price.
- Adapt to the market: Pricing is an ongoing process. Even the best plan can falter when it meets reality. Sellers should be prepared to accept that their assumptions and their agent’s market analysis are subject to change. According the National Association of REALTORS®, 37% of sellers reduced the asking price once.
An overpriced house may sit on the market too long or not sell at all. Do your homework and use an objective, fact-based process to set the right price from the start.
Pricing real estate is an intriguing, multi-faceted process, and it’s just one of the cool things agents do in the real estate business. Want to learn more or even become a real estate agent yourself? You can get all the training you need finished anytime and anyplace you have internet. 360training.com offers the prelicense courses you’ll need to get a real estate license plus the continuing education to keep it. Enroll today!