How to Price Your Home For Sale
How and where you price your home for sale is one of the most importa= nt 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 aw= ay potential profits out the window. As you begin to determine the price for y= our 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 pr= ice 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 w= here the actual sales price will fall. The highest price in this range is genera= lly 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, whi= ch 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).
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. S= ales 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&quo= t; 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 $400,00= 0 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 deter= mine 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 rea= lize that the average home sold for $108,000 in your neighborhood. As you evalua= te 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 su= pply of home on the market. If you find your neighborhood falls into this catego= ry 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 t= ends 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 marke= t". A buyer's market the reverse of a seller's market--where you have more sell= er'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 f= or 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 avera= ge 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 t= he real estate market do not offer to purchase a home at the asking price; rat= her, 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 s= ale 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, t= he average price/sqft equals $89.88/sqft ($99,500 / 1107 =3D $89.88). Calculat= e 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 multipl= ying 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 f= or 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 determi= ne an expected sales price of your home.
Other factors will affect how you price your home. These factors incl= ude:
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 beg= in work elsewhere, what will it cost you to own your home for three or four mo= nths 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 pri= ce anyway? If you are facing foreclosure, I suggest that you offer a lower pri= ce from the start.
What condition is the home in? Condition is the only factor th= at 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 buy= er will not pay top dollar for the home.
What is my competition? Competition can also be equated with t= he 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 s= ome areas of Phoenix, a pool may increase the value by $10,000. Failing to acco= unt 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 firepla= ce, pool and/or spa.
One final point to consider when pricing your home: keep the price be= low 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 b= elow 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 wh= o 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 aski= ng 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 val= ue 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 wi= th 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 comparab= le 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 n= ot 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.