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How to set the right price for your home

by Katy Byrom
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Want to get the most money out of your house? It starts with setting the right asking price. These tips will show you how.

In addition to all of the memories it carries, your home is a major financial investment. Naturally, you want to get the most equity out of it as you can. However, what your home is worth is ultimately up to what a buyer is willing to pay for it. Determining that magic number is often the first significant hurdle in the selling process.

Following a year of staggering 18% growth in average home prices, many homeowners are tempted to “test the market” with a sky-high asking price. However, even in an extreme seller’s market, there are limits to how far buyers are willing to stretch their budget for a home. On their way to discovering that limit, 38% of sellers reduce their list price at least once.

Today’s home buyers have more information at their disposal than ever before. With a quick online search, they can pull up property details, see what other homes are going for in the area, and get a feel for whether a home is priced fairly in relation to the competition. If they sense a home is overpriced, they’ll quickly move on to the next one.

To attract an offer that meets your expectations, you need to set a realistic asking price. Here’s how to do it. 

Determine your home’s value

To price your home, you need to know its actual value in the current market. Fortunately, there are several ways you can determine your house’s worth. 

Start with an online home valuation estimate 

Online home valuation estimates, also called Automated Valuation Models (AVMs), use an algorithm to estimate your home’s value. These algorithms assess data such as public and MLS-based sales records, tax assessments, property transfers, and neighborhood information such as school ratings and average home values. It also considers recent sales and listing prices in your area. 

Made popular by sites such as Zillow, Trulia, and Redfin, these online assessments offer a quick and convenient ballpark estimate of your home’s worth. However, they also tend to vary in reliability depending the home’s location, the amount of data available, the volume of sales in the given area, how long the home has been off the market, and how accurately the data reflects the current picture of the home and surrounding neighborhood. 

Each platform has a different way of calculating a home’s value, and estimates can be off by tens of thousands of dollars, or more.

Source: Realtor.com

Some sites allow you to log on and update your home facts to provide a more accurate estimate. However, they still may not adequately account for shifting market conditions and your home’s special features, like recent upgrades or income potential from an AirBnB unit in the finished out basement.

So, while these estimates can provide you with a starting point, they’re not a reliable substitute for a more hands on comparative market analysis or formal appraisal, both of which involve getting actual eyes on your property to offer a professional opinion of its value.

Run a comparative market analysis (CMA)

For a more accurate estimate of a home’s current market value, real estate agents typically run a comparative market analysis (CMA). However, it doesn’t hurt to conduct your own market analysis to get a better feel for what other homes are selling for in your neighborhood. 

This strategy involves comparing your house to similar nearby homes, also called comps. CMAs tend to be more accurate than an online estimate since the process accounts for more minute similarities and differences between your property and actual recent home sales in your area. However, it does take more time to prepare.

A CMA report typically includes information on your property and three to five comps. When selecting comparable properties, you’ll want to focus on finding properties that:

  • Sold recently, within the last 6 months (fewer, if you are in a fast-appreciating market)
  • Are similar in size and condition
  • Are ideally in the same neighborhood
  • Use the same local schools

If you’re preparing your own comparative market analysis, you’ll want to use a spreadsheet to make it easy to evaluate the information. You’ll want to include details such as:

  • General description of each home, including the address, floor plan, number of bedrooms and bathrooms, type of flooring, etc.
  • Special features like vaulted ceilings, updated kitchen, a loft space, a deck, mountain views, or direct water access
  • Proximity to amenities
  • Quality of the local schools
  • The square footage of each property
  • Price that each comp sold for, as well as the sold price per square foot

Also note anything that’s special about the surrounding property and neighborhood, such as its being on a lake, greenbelt, or golf course. 

To find comparable properties, you can search:

  • Public property records typically through your county’s records, which may be available online
  • Popular online real estate marketplaces like Zillow using the recently sold filter
  • Your neighborhood analyzing recently sold properties that are similar to yours
Source: Zillow.com

A CMA is only as good as the comps gathered. If you can’t find enough comps with similar amenities, you’ll need to widen your search and adjust for differences between your home and the other properties. 

Making accurate pricing adjustments can be tricky, especially if you’ve never done it before. That’s why most real estate agents pay for access to automated CMA tools that calculate these adjustments automatically, while allowing them to make further manual adjustments based on their experience and knowledge of the local market.

In general, a private seller won’t have access to as many recently sold properties as a local real estate agent would through professional grade CMA tools and paid access to the MLS, so the quality of your comps compared to a real estate agent’s may vary. 

Talk to an agent

Top agents have intimate knowledge of what’s happening in the local market, which can be invaluable when setting a competitive asking price. They know what kind of market you are operating in and what you can get away with in terms of setting an asking price and negotiating concessions. 

When you invite an agent to do a home valuation, they can quickly assess it from the viewpoint of a prospective buyer. They can also guide you on what features – such as a home office setup or updated flooring – are trending with house hunters in your area. That way, you can decide on any improvements or staging choices you want to make prior to listing. 

Seasoned real estate agents also have insight into how factors like seasonality affect home sales in your area. This type of information helps you make an informed decision on when to list for the best chance of getting top dollar. For example, if you’re not on a tight timeline, it may be best to wait for when home prices tend to be at their highest in your area.

If you decide to work with an agent to sell your home, you can generally expect them to provide a free comparable market analysis and suggested pricing range as part of their service. They should also give you a “seller net sheet” estimating your profit, commissions, and closing costs for the suggested list price.

Hire an appraiser

An appraisal offers a non-biased opinion of your home’s fair market value from a licensed and certified appraiser. Often, the buyer is required by their lender to get an official appraisal before a loan can be completed. However, you may want to consider this option when determining your listing price, especially if it’s difficult to get quality comps.

Like a CMA, an appraiser analyses information about your property’s characteristics, such as size, location, amenities, and condition (both interior and exterior). Additionally, an appraiser will consider factors like whether you’re in a flood zone, the condition of your home’s foundation, specific amenities, signs of potential structural damage, home improvements you’ve made, and more. They also compare your house to others that have recently sold in your area.

Obviously, an appraisal can take a lot of the guesswork out of determining your home’s value. Some sellers also like that it’s completed by a neutral 3rd party, as opposed to an agent who has a stake in selling your home. The downside of an appraisal is that it can run you upwards of $400-$500. And, unlike an agent-prepared CMA, it won’t come with any free advice or recommendations for how to price and sell a home in your market.

Which home valuation method should you use?

There’s no one way to determine your home’s value. Often, sellers will use a few different strategies to ensure they’re pricing their home competitively. 

For instance, you can begin with an online home valuation for a starting estimate. Then, depending on your local market conditions and availability of quality comps, you can decide if you want to run your own comparative market analysis, have a real estate agent conduct one, or hire an appraiser. You can even ask a few different agents to run a CMA, which many will do for little or no cost, and compare the results to get a more nuanced picture of your home’s worth.

Consider the impact of different pricing strategies 

Now that you’ve determined your home’s value, it’s time to set your asking price — this is one of the most critical parts of the selling process. You want a price that you feel good about, but that will also attract the right buyers, so your home doesn’t linger on the market. 

When it comes to pricing strategy, there isn’t a one-size-fits-all solution. The price that makes sense depends on a number of factors, including seasonal market trends and your timeline for selling.  

If you’re working with an agent, they’ll walk you through the implications of different pricing strategies to find the best option for your situation. Here are some commonly used pricing strategies, along with the advantages and potential disadvantages of each. 

Pricing your home below market value

Some sellers intentionally set their listing price well below the market value of their home and their competition. Why? They’re hoping to get more attention to their home and, ultimately, start a bidding war. 

While this strategy can backfire, there are times when it’s effective. For instance, if you’re trying to sell in a buyer’s market, more homes are available than buyers. This situation puts buyers at an advantage. By pricing low, you can gain the attention of more buyers.

You could also consider underpricing your home if it’s older or needs repairs that you don’t want to make. Sometimes this strategy can lead to multiple offers since more buyers may take a look at your home, resulting in a bidding war. 

Viktor Kruse, an experienced real estate professional managing REX’s South Florida market, notes that, “When a home is priced below its fair market value, it is highly likely that the home will get bid up to or beyond its true market value. The lower the price in relation to the true market value the stronger the response by buyers. ”

However, this strategy doesn’t always work, especially if you intentionally price your home too low. By trying to start a bidding war with a well-below-market price, you risk losing some of your home’s value if bids start out significantly lower than fair market value.

An unusually low price can also be a red flag for some buyers and cause increased skepticism about the quality of your home’s construction materials or the amount of repair work needed

Pricing your home above market value

Some sellers want to price their home above market value. While we can’t say it never works, you do want to proceed carefully if you’re pricing higher than your competition.

Kruse agrees that this strategy can work on occasion. “A rare situation where it can make sense to price a home above its fair market value is in an appreciating market when the seller is not in a rush to sell.” 

However, Kruse also stresses that “in a normal market without massive appreciation or depreciation, overpriced homes typically sell for less due to the listing becoming stale and buyers assuming that something is wrong with the house.”

“In a normal market without massive appreciation or depreciation, overpriced homes typically sell for less due to the listing becoming stale and buyers assuming that something is wrong with the house.” 

Viktor Kruse, REX

If you want to try listing above market value, be clear about why you’re doing it. Perhaps you feel the upgrades you’ve made will entice a buyer to pay above market value (you only need one after all). Perhaps your home has a unique location that you feel evaluations haven’t fully captured. Just be sure that your decision isn’t purely emotionally based. Remember, buyers don’t have the personal attachment to your home that you do.

You’ll also want to set clear boundaries when attempting to sell high. For instance, set a specific deadline for selling your home. If your home doesn’t receive any interest or a contract with that time, you’ll want to cut your price.

Ideally, you don’t want your home on the market too long. Buyer’s skepticism about your home’s quality, value, and condition typically increases if your house lingers on the market. If you’re priced too high, they (or their agent) may have concerns over how things will go during the contract negotiation and the ability to get it financed if it doesn’t appraise.

Pricing your home at fair market value

Pricing your home at fair market value can help you see the kind of traffic you want while still leaving the door open for a bidding war. If buyers see the value in your original list price, they will be more likely to offer more to win out on the home.

Says Todd Rosenbaum, an experienced real estate broker leading REX’s Seattle market, “The more persuasively I can advise sellers to price their homes within the fair market value range, the more positive results they are going to see. With a fair asking price, you’re going to have fewer days on market, a larger and more motivated buying pool, and the avoidance of pricing reductions that can scare off prospective buyers.”

If you’re determined to sell your home on your own, you can use your appraisal to set your list price, which can also help ensure you’re not letting your emotions dictate your pricing strategy. Or, you can ask an agent for an a la carte consultation to provide you with a CMA, offer guidance on the small repairs and home improvements that are going to generate the greatest return on investment, and help you determine a fair market value for your home. 

Know the market you’re in

From housing inventory and interest rates, to consumer confidence and competition from all-cash investors, there are a number of factors that can impact your home’s final sale price. Therefore, the more you understand the current market, the better your chance for setting a competitive listing price and getting the most value out of your home.

Pricing for a buyer’s market versus a seller’s market

One critical factor in determining your home’s list price is knowing whether you’re in a buyer’s or seller’s market. 

If you’re in a buyer’s market, there are often more homes for sale than there are buyers. This scenario gives buyers an advantage. As a result, you may want to slightly underprice your home to attract more buyers. But, if you’re in a seller’s market where there is more demand than available homes, you may be better off pricing at or slightly above market value.

To determine if you’re in a buyer’s or seller’s market, you can research local market trends online. For instance, search for charts or data about the current housing market, including your city’s average listing price and median sales price. You can also look for local real estate articles discussing the market.

Other market factors that impact home sales include:

  • Time of the year: Spring is often a prime time to sell a house, especially for families with children. It can be less disruptive to their children if they can time the move during the summer. Winter can often be the least desirable time to sell since the weather is often bad and people are focused on the holiday season.
  • Interest rates: Interest rates can impact buyers’ ability to obtain a mortgage, which can influence the local market. For instance, low interest rates can make it easier for buyers to get a mortgage. This can create a higher demand for homes, which may push up the price of properties. However, higher interest rates can make it more challenging to get a mortgage, which can lower the demand and, ultimately, the price of homes.
  • Overall economy: When the economy is slow, there may be fewer buyers, which can make it harder to sell your home. For instance, fewer people may be moving into the area if there are less employment opportunities in your local area.  

More tips for pricing your home

While you can’t control certain factors, like the local market or the economy, there are steps you can take so you can get the most value out of your home. Here are some additional tips to help you when pricing your home.

If your home is older, consider ordering a pre-inspection

Says Todd Rosenbaum with REX, “If your home is more than 10-15 years old, we always recommend doing a pre-inspection. Structural issues like roof and foundation repairs can scare off potential buyers and potentially give them an out once your home is under contract.”

To avoid a deal falling through on an inspection contingency, it helps to know about any problems upfront. That way, you can decide whether you want to make repairs before listing or adjust your asking price to sell your home “as is.”

Most states require that a Seller’s Disclosure be provided to the buyer during the closing process. This is where you’ll note any known issues or defects with property, such as leaks, electrical issues, infestations, or cracks in the foundation. You’ll also list out any steps taken to address these issues.

Providing a seller’s disclosure ahead of the contract negotiations can potentially help the final sale price. Knowing that a potentially major repair has already been taken care of can put buyers at ease and turn a problem into a selling point.

Put home improvements into perspective

If you’ve put significant time and money toward remodeling your home, it’s natural to want to recoup those expenses with your home sale. That said, when it comes to home renovations, the return on investment is rarely dollar for dollar. 

This is especially true if your area doesn’t see a lot of appreciation. For example, you may love floor-to-ceiling Italian marble, but if you put $200,000 worth of custom upgrades into a home in a neighborhood where most properties are only worth about $250,000 to begin with, you may have trouble making up for the cost. 

Even with the most high-end finishes, if your listing price is too far out of line with other homes in the area, buyers are less likely to see it as a sound investment for resale. Also keep in mind that remodels are often competing against newly constructed homes, which may be preferable to an older home (even an updated one) that is more likely to need repair work. 

Therefore, consider the resale value of renovations before sinking too much money into your property with the expectation that you’ll be able to recoup your full investment. In general, a custom home in an undesirable area is going to see less appreciation than a decent house in a preferable location.

Set your asking price to fit into multiple price ranges

Let’s say your agent runs a comparative market analysis and determines that your home is worth $410,000. Rather than listing it right at market value, they might suggest putting it on the market for $399,000. 

While listing your home for less than its worth may seem counterintuitive, the idea is to maximize your home’s exposure among the largest pool of buyers. The lower list price will meet the search criteria of buyers who are shopping for homes under $400,000 and those who have set their maximum to $425,000. Buyers shopping in the $375,000-$400,000 range may be willing to push their budget for the right house. 

The larger the pool of buyers you appeal to, the better your chances of starting a bidding war. Therefore, consider pricing your home at just below a major benchmark to have a better chance of falling into a broader selection of price ranges. 

Take a walk in the buyer’s shoes

Purchasing a home is a largely psychological decision. Even temporary factors, like how dark or cluttered your house is during a showing, can impact its perceived value to a buyer. Therefore, when determining a fair asking price for your home, it helps to look at it with fresh eyes. 

How clean or messy is it? How bright and welcoming does it appear? Are there pet stains on the carpeting or markings on the walls? How current or outdated do the fixtures and finishes seem? What impression does it make compared to other homes for sale in the neighborhood?

An experienced real estate agent can help you see your home through the eyes of prospective buyers. They can also tell you where it might be worth investing in upgrades or small improvements to increase your property value before selling. 

As a seller, you also can look for a brokerage, like REX, that helps you cover the upfront costs of preparing your home to sell. That way, you won’t pay anything out of pocket. The amount borrowed will be recouped from the profits at closing. If you’re worried about the initial costs of home repairs, call up a few agents and see what they can do for you.

Clean, decluttered, and well-staged homes tend to go for more

First impressions are critical when you’re selling a house. You want buyers to be able to see themselves living there. To help increase your home’s visual appeal, you’ll want to clean, declutter, and potentially stage it. (The National Association of Realtors determined that staging can help you sell your home faster and potentially for as much as 20% more.)  

Before staging your home, remove most of your personal items and deep clean all rooms. Don’t forget to pay attention to your home’s curb appeal. Make sure the outside looks inviting since that’s the first thing buyers will see.

When staging your home, look for minor fixes and simple decorative changes that can make your house look updated and inviting. You’ll want to focus on key rooms, such as the kitchen, bathrooms, and master bedroom. If you’re working with an agent, they can provide tips specific to the current market.

Professional photos and video will get you more listing activity

97% of buyers start their home search online. Once you’ve prepared your home for sale, you’ll want to take quality photographs (and possibly even video) of your whole property.You want to ensure your photographs and video highlight the unique elements of your home and help engage the interest of buyers. 

Ideally, you’ll want to hire a real estate photographer or ask your agent, who may include professional photography and videography as part of their service.

Know when it’s time to reevaluate

The housing market can shift rapidly. Even if you’ve done your research, be prepared to be flexible in your pricing approach. If you’ve had 20 potential buyers come through and no offers, or your home has been listed for more than 30 days, it might be time to adjust your asking price. 

The longer a home stays listed, the greater the risk of the market cooling off. Missing out on a hot market due to an unwillingness to budge on the list price may mean that you’ll be forced to sell for a price that is even lower than what you might have gotten had you listed it at or below market value in the first place. 

When making pricing adjustments, it’s best to jump right in with an attention-getting price cut rather than making a series of small tweaks, which may signal a reluctance to bring it in line with fair market value. 

A significant price cut has the best chance of attracting attention from previously interested buyers who liked the home but were concerned about whether it would be a sound investment at that price point. With plenty of other homes on the market, smaller adjustments may not be enough to tempt them back. 

Before you unveil the new list price, you can ask your agent to reach out to her or his contacts to let them know a price cut is coming. If a buyer has their eye on your home, they may make an offer that’s slightly higher than the new intended asking price in the hopes of quickly stomping out the competition.

Another strategy to consider is taking your home off the market for a while and then relisting at the lower price point. Whether you choose to delist or not, consider changing the featured image on your listing to make it appear new and potentially draw more clicks compared to a photo that may already be familiar to those who have been looking for a while. 

Pricing your house competitively from the start can help you sell your home faster and for more

There are so many factors to consider when pricing your home. Unfortunately, not all of them are within your control. However, understanding what influences your home’s value and taking steps to price it well for the market can help you attract a worthwhile offer.

If you’re ready to sell your home, REX’s dedicated team can guide you through every part of the process, including determining your listing price and even helping you cover the costs of minor repairs and improvements. 

Every day, REX helps home sellers keep the equity from their homes while saving thousands in fees charged by traditional agents. Get started by contacting REX for a free home valuation report and comparative market analysis. Call us at 855-205-0599 or visit rexhomes.com.

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