Why didn’t your neighbor’s home sell? The home is in a good location with a corner lot and a large landscaped yard, plus it’s a newer home with all of the plush amenities a buyer could want like an open floor plan, spacious bedrooms, and high grade cabinets and appliances. So why wouldn’t at least one buyer want to buy the place?
There is a one word answer: price. Homes that don’t sell are more than likely overpriced. The market isn’t rejecting the home so much as it’s rejecting the price of the home, and in today’s ultra competitive real estate market buyers will only purchase a home that offers them the best value for every dollar spent.
So if you don’t want to follow in your neighbor’s footsteps how can you pick the “right” price, one that provides you with top dollar but doesn’t send potential buyers running into the arms of your competition? Let’s look at some quick tips to help you set the right price for your home:
1. Look at the comparables
Identify homes that have sold in your market area over the last few months that bear some resemblance to your home. This is called researching the comparables. Next, take an objective look at each listing and ask yourself based on what has sold recently what you should expect to receive for your home. By the way, this is exactly the same approach that appraisers will use to determine market value should your home sell to a buyer who requires a new loan. (It’s highly likely as 93% of buyers will finance at least part of their purchase)
2. Look at the trend line
Where is your market heading? Is it going up, down, or sideways? By understanding the market’s trend line you can price your home ahead of the curve instead of chasing the market. For instance, a seller who overprices his home in an area of declining prices is actually more overpriced everyday he remains on the market, while a seller using a more aggressive pricing structure may seem to be selling too cheaply today but may look like a genius in six months.
3. Look at the days on market
If you only have a limited amount of time to sell, it may be wise to closely study the average days on market. This number is the average length of time it takes a home to sell from start to finish in your current market. For instance, if on average it takes 90 days to sell in your neighborhood but you need to sell in 30 days – guess what? You may need to adjust your price downward to attract a buyer more quickly.
4. Get opinions
One way to help determine a price for your home is to ask for a competitive market analysis (CMA) from a local agent. Typically a free service, these reports will detail market statistics, active and sold comparables, and often include adjustments for unique items that your home may offer. But, because an agent has vested interest in building a relationship with you, it may be difficult for them to tell you a realistic price so be sure to give them permission to be brutally honest.
5. Avoid the traps
Many sellers fall into some classic pricing traps that can easily be avoided. One is assuming that the tax value of a home is an accurate pricing gauge. This is a bad idea as many taxing authorities use computer models that have not yet accounted for the steep price declines experienced in most areas of the country. Another trap is assuming that the insurance replacement cost is a good indicator of value. Nope – the replacement value is an estimate of what it would cost to rebuild the home, not what the home is worth today. The last trap is assuming that your home is always superior to the comparables. This is not likely – your home has pluses and minuses like all the homes that have sold in the marketplace.
So how will you know if you get the price right?
If you have a steady stream of buyers pouring through the front door every week, odds are you have done a good job with placing a fair market value on your home. On the other hand if all you hear outside your home is the unnerving sound of silence, you may need to make a quick pricing adjustment. Sure many home owners make the “I don’t have to sell” speech in the mirror every morning, but the fact is if they have a for sale sign in their front lawn they do want to sell, and the best way to ensure a successful sale is to set a realistic price relative to the market conditions.