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There is not any scientific formula to determine
the value of your home. You may have one number in mind, the
appraiser may determine another and if you ask three different real
estate agents, you will hear three different numbers. The very
nature of value is inherently subjective since it is a result of one
person's analysis of current market data in relation to your home.
The buyer, for example, may feel your home is only worth $95,000 since
many of the appliances are dated and the carpeting is worn. You,
on the other hand, may feel that your castle should sell for no less
than $115,000, especially since you had recently re-landscaped the
backyard and personally trenched the sprinkler system.
However as you place an asking price on your home,
there are several mistakes many sellers make when determining that
initial number. The following are many common mistakes that FSBO's (for sale by owners) have made in the past:
The total improvements made to the home.
Many sellers will calculate the total cost of improvements and upgrades
and add that number into the pricing equation. If you spent
$12,000 remodeling your kitchen with purple veneer cabinets and white
laminate countertops, it is unlikely that you will find a buyer that
feels the home is worth $12,000 more as a result. Certain buyers
may actually deduct additional costs from their contract price in order
to cover the cost to tear out and replace your improvements. As discussed in
the What to Fix or Repair
section, the seller will never recover 100 percent of the cost of
improvements and a buyer will never truly appreciate the upgrades the
same way the seller does.
Pricing based upon your needs. It is
not uncommon in real estate today to encounter a seller that needs extra
cash. However pricing your home based upon your financial needs is
neither practical or realistic. You may need $100,000 to pay off
your current mortgage, $20,000 to pay off back IRS taxes, and an
additional $30,000 for the down payment on a new home. As we have
discussed in the How to Price Your Home section, the value of your home
is set by what a buyer is willing to pay and what you are willing to
sell for. If homes in your neighborhood are selling for $120,000,
there is a slim to no possibility of a buyer paying $150,000 for your
home, regardless how much money you need to make from the sale of the
home.
Accurately pricing your home depends on careful market analysis, not
balancing your checkbook.
Emotionally pricing your home. You may
have the nicest home in the neighborhood, with the nicest carpet, a
manicured lawn with a white picket fence surrounding the perimeter, and
a well-trained dog named Fido that cleans up after himself. You
may be divorcing your spouse and just want to be rid of that home.
As you set your price, focus on setting a price that fairly represents
the current market, without letting your emotions affect your decision.
Intentionally overpricing the home.
Believe it or not, many sellers will raise the asking price above the
fair market value in hopes of finding that one buyer who holds the deed
to the Brooklyn Bridge. Give your buyers a little more credit than
that. Believing that you can come down in the price only prolongs
the sales timeline, wastes advertising money, and means you must pay the
mortgage payment for another month. Even if you were lucky enough
to find an unsuspecting buyer willing to pay your price, chances are the
lender's appraisal will come in less than the sales price. This means
you must lower the sales price, have the buyer come in with more money
to pay your inflated price, or cancel the contract and start all over.
Pricing your home 6% less than the market.
A popular practice employed by many home owners selling by owner is to
instantly reduce their asking price by six percent because there is not
an agent involved in the transaction. Does a home lose value
because an agent is not involved? Certainly not. Though it
may attract more attention to your home and possibly sell it quicker
because it is underpriced, you must consider that the time and energy
you invest in selling your home is equal to the commission you would pay
a real estate agent to do the same thing. If you sell it, you
deserve the commission.
As a buyer visits your home, you can be assured
that he or she has toured other properties in the area. The buyer
will have an idea of market value in your area and how competitively
priced your home is in relation to the other homes.
Overpricing your home will deter potential buyers
and cause it to stay on the market longer. As a result, you
can expect to invest more personal time in open houses and the daily
upkeep to make your home "show ready", more money in advertising your
home for sale and having to make another mortgage payment, and run the
risk of losing your buyer to the competition because they had the
insight to price their home within the current market.
Underpricing your home will sell your home quicker and reduce your expenses.
By lowering your price, you reduce your overall profit from the sale of
the home. A thousand or
two thousand dollars may not seem that significant if you fail to earn
that in the sale of your home. But consider if your bank loses two
thousand dollars from your checking account. What would your
reaction be then?
Trying to determine that exact number where to
initially price your home can be a grueling
task for many sellers. It is not an exact science. Overpricing only leads to less money in
your pocket, additional expenses, and a longer selling period. Underpricing only robs you of your well-deserved equity. Avoiding
these common mistakes and properly pricing your home will help ensure
that you receive the highest possible price for your home in that given
market.
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