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How and where you price your home for sale is one of the most important steps when selling your home. If you
price it too high, you run the risk of scaring off many potential
buyers. Price it too low, you may be throwing away potential
profits out the window. As you begin to determine the price for
your home, you will need to research the current homes on the market.
This helps you determine a starting price, the expected sales price and the
rock-bottom price for your home.
Most sellers do not expect a buyer to pay the full
asking price for a home. As a result, a seller should think of
pricing as a range of numbers where the actual sales price will fall.
The highest price in this range is generally the starting price, which
is usually the initial asking price for a home. On the other side
of the spectrum, a seller will have a rock-bottom price, which
represents the lowest acceptable price he or she will take for the home.
The expected sales price generally will fall somewhere between the rock-bottom
price and the asking price.
Most sellers will determine an asking price by
evaluating comparable home sales (also referred to as "comps") to arrive
at a starting point. A comparable sale is a home that is similar
in size (+/- 20% of the sqft), age and amenities, that was sold no more than six months ago, and
is located in a close proximity to the property (the closer the better--generally
within a one-half to one mile of the home).
Homes that have sold more than six months ago generally do not reflect
the current housing market. Be sure that you select like-kind
properties (i.e. apples to apples comparison).
For a list of comparable homes in your
area, click here
When studying your list of comps, narrow your list
down to six to ten properties and eliminate the highest and the lowest
sales from your list. Sales on the lower end tend to represent
homes where the seller was desperate to sell due to a job transfer,
homes sold to family members for a "bargain" or some other excuse that
does not represent the market as a whole. Homes on the higher end
of the list (tempting as they may be) also do not accurately reflect the current housing market. These higher priced homes either are
not truly comparable or the buyer did not make an informed choice when
buying. Unless you are truly lucky to find that out-of-state buyer
who thinks that $400,000 is cheap for housing (even though homes are
selling for $200,000 in your area), chances are the buyer will not want
to pay more for your home when the house down the street is selling for
less (appraisers call this the Principle of Substitution).
Your list should also contain comparable properties
that are for sale in your area. Even though homes
that have sold will help determine what you should expect to sell your
home for, analyzing homes that are for sale will help establish what
sellers are asking for their homes.
Calculate the average asking price for homes for
sale and the average selling price for homes that have sold.
Compare the difference between the two numbers and calculate the
difference between them. For example, you may realize that the
average home sold for $108,000 in your neighborhood. As you
evaluate homes that are for sale, you realize that the average seller is
asking $110,000 for their houses. Using the numbers in this
example, sellers are receiving 98% of their asking prices on average.
Homes where the average percentage ranges from 95%
or higher show a healthy and stable real estate market. This type
of market is typical of a "seller's market". A seller's market is
when there are more buyers than available sellers and, as a result, a
higher demand for the limited supply of home on the market. If
you find your neighborhood falls into this category and if you keep your
price realistic, you should expect the home to sell relatively quick and
receive close to your asking price.
Homes where the average percentage ranges from 90%
to 95% represent a softer real estate market. Homes tend to sell a
bit slower and the seller tends to settle for a lot less than expected.
In order to sell a home quickly in this type of market, a seller will
have to drop the price from the start.
Homes where the average percentage is below 90%
indicate a weak real estate market. This market is commonly
referred to as a "buyer's market". A buyer's market the reverse of
a seller's market--where you have more seller's than available buyers
and as a result the buyers are able to dictate a lower sales price on
the homes. Neighborhoods in this categories will see homes for
sale for extended periods of time and sellers will offer
out-of-the-ordinary terms and rock-bottom prices.
Once your list is narrowed down, drive by the homes
to see how similar they are to your home. This is an important
step because it allows you to upgrade or downgrade how comparable the
homes on the list are.
After reviewing the list and driving by the homes,
it is time put an asking price on your home. My suggestion is to
offer no less than the average asking price you determined in the steps above.
Do not make the mistake of using the average sales price for your asking
price. 99% of the buyers in the real estate market do not offer to
purchase a home at the asking price; rather, they expect to negotiate on
a price which results in you receiving less than you are asking.
In order to expect the average sales price, you would have to sell your
home at the average asking price.
Another method commonly used by sellers and real
estate agents is to look at the average price per square foot for
comparable homes that are for sale and comparable homes that have
sold
within the last six months. This method is similar to the one
mentioned above, but tends to place a more realistic price upon the
property.
To determine the price per square foot (price/sqft)
for homes that are for sale, divide the asking price by the square
footage of the home. For example if a home is currently for sale
at $99,500 and the has 1107 sqft, the average price/sqft equals $89.88/sqft
($99,500 / 1107 = $89.88). Calculate the price/sqft for each home
for sale and average them out. This will give you the average
price/sqft for homes that are for sale.
|
Address |
Asking Price |
Sq. Footage |
Price/sqft |
| 1234 E. Main St. |
$99,500 |
1107 sqft |
$89.88 |
| 8901 N. 3rd Ave. |
$97,000 |
1050 sqft |
$92.38 |
| 1301 E. Main St. |
$100,000 |
1107 sqft |
$90.33 |
| 7804 N. 2nd Dr. |
$105,000 |
1210 sqft |
$86.78 |
| 7926 N. 5th Ave. |
$103,000 |
1130 sqft |
$91.15 |
|
Averages: |
$100,900 |
1121 sqft |
$90.01 |
Using the example above, the average price/sqft is
$90.01. By multiplying this average by the square footage of your
home, you can estimate what your asking price should be. For
example, if your home has a 1107 sqft, multiply the average of $90.01
with 1107 to determine an asking price of $99,641.
Once you have figured out the average price/sqft
for homes that are for sale, determine the average price/sqft for homes
that have sold within the last six months. Multiply this number by
your square footage and you can determine an expected sales price of
your home.
Other factors will affect how you price your home.
These factors include:
How quickly must you sell your home?
Have you been promoted and your company wants you to start your new job
in a city across the country? Are you facing foreclosure action
and you only have a limited amount of time to sell your home? If
you have an urgent need to sell the home, consider your price carefully.
If your house sits vacant for several months while you begin work
elsewhere, what will it cost you to own your home for three or four months
while the home is on the market? Would it be cheaper to offer a
lower price initially rather than incurring those expenses and settling
for a lower price anyway? If you are facing foreclosure, I suggest
that you offer a lower price from the start.
What condition is the home in?
Condition is the only factor that a seller has any control over.
As you price your home, ask yourself, "How does my home compare with the
other homes in the area?" Though it may be the same model, the
same size and in the same subdivision as higher priced homes, if a
home's condition is far worse than the neighbor's houses, a buyer will
not pay top dollar for the home.
What is my competition?
Competition can also be equated with the current market conditions.
As you drive through your neighborhood looking at your comps, are there
a lot of homes for sale, or are there just a few? Is your area a highly
desirable neighborhood, or are most buyers looking elsewhere? If
you are suffering through a buyer's market, you may have to expect less
in order to make the sale.
Consider the amenities. Even though one home
may seem like your home, it may have additional features such as a pool
or a fireplace. These small nuances can have an
effect on what you should ask. The average pool in Phoenix, AZ,
for example will increase a home's value by about $5,000. In some
areas of Phoenix, a pool may increase the value by $10,000.
Failing to account for a pool in your price can hit you in
the pocket book. When deciding which comps to use, focus on homes
with similar square footage, age, number of bedrooms, number of
bathrooms, the fact that the home has a great room vs. a living room and
family room, and any significant features such as a fireplace, pool
and/or spa.
One final point to consider when pricing your home: keep the price below the $5,000 increments. There is a
significant difference to a buyer with a home priced at $98,000 and a
home priced at $101,000 though there is little difference between a home
priced at $62,000 and one priced at $64,900. When pricing your
home, consider rounding up or rounding down your sales price below the
$5,000 mark. For example, you feel your asking price should be
$150,000. Consider dropping to $149,900 so as not to eliminate all
of those buyers who do not want to cross that $150,000 threshold.
Do not let others confuse you about pricing your
home. Friends, family and real estate agents will suggest other
approaches to determining an asking price. There are a variety of
other methods that you can utilize. The cost approach, for
example, determines value based upon the replacement cost of the home
minus accrued depreciation. Investors may determine a property's
value based upon its net income (referred to as the income approach).
Agents may suggest that you determine your home's value based upon its
tax or assessed value. Unfortunately your assessed value is often
lower than the market value of the home and is seldom a reliable guide. Others may say you need
to pay $300 to $500 for an appraisal on your home. However, most
lenders will not allow you to use your appraisal for the buyer and 99%
of the time you will come up with the same number using the techniques
mentioned above..
So, where should you price your home? You know that if you price your home for $100, it
will sell in less than a day. If you price your home for $100
million, it will probably never sell. The price you should ask
will be somewhere between $100 and $100 million. However, by
analyzing the comparable home sales in your area, you should be able to
derive the pricing range for your home.
Though many real estate agents will not tell you,
pricing a home is not an exact science. In fact, pricing is more
of a guessing game. As a seller, you are trying to figure out a
number that will attract the maximum number of potential buyers without
sacrificing too much of your equity. In addition, you have to
factor in the type of sales market your neighborhood is in, the
condition of the home, how quickly you need to sell your home, and the
competition you face in you area. Buyers know what your home is
worth, and if they can buy a similar house cheaper down the street, they
will. Don't let that happen to you because you were too unrealistic
with your asking price. Give the buyer a fair price and your home
will sell.
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