Note: This post is part of our Home Sellers’ Journey series, where we walk you through every step of selling a home . For the first post on how to get started once you’ve decided to sell, please go to Steps to Take Now to Get Your Home Ready to Sell.
Now that you’ve prepped and repaired your home, you’re ready to price it for listing.
As a home seller, you want the best possible price for your home. Several factors, including market conditions, interest rates, and list price, will determine how much you can get for your home. You don’t control the first two items, but you do control the third. Set the price too low, and maybe you could have gotten more money from the sale. Set the price too high and the home might not sell at all. But setting the list price is not rocket science. A bit of research and an understanding of some universal negotiation principles, and you can get there.
Many homeowners think their house is worth more than it actually is, or, they see what their neighbors’ home sold for and think they can get a similar or better offer without accounting for square footage, condition and finishing differences between the properties. Prep yourself. Be realistic about the true value of your home based on the market and be thoughtful about what concessions or repairs you’ll have to make to get the highest offer for your home.
The first step in finding your home’s value is to research the local market. You can start by using sites like Homie, Zillow, and Trulia. Look at similar homes in your area that are for sale. See how they are priced. Be careful with estimated prices on sites like Zillow on homes that are not for sale because those values can be off by as much as 20%! The listing prices for homes that are actually for sale in your area will give you a better idea of the current market. An even better tool to estimate your home’s value is to find the final sales price for recently sold homes in your neighborhood. If a neighbor’s house sells quickly at full asking price, their price might have been too low. If another home sits on the market for a long time at a certain price, it’s likely overpriced. Use those data points to help determine where you should price your home.
If you really want to know how much homes are selling for (you do), you should consider getting an appraisal for you home. Appraisals come in two forms—a full appraisal that costs $300 to $500, or a desktop appraisal, which usually costs a lot less than a full appraisal but uses comparable sales and software to come up with an estimated value of your home. The desktop appraisal does not take into account the condition, upgrades or remodeling of your home, however. It’s usually fairly accurate as long as the appraiser pulls reasonable comparison sales (comps), but be careful not to put too much stock into a desktop appraisal if the comps used by the appraiser are not recent sales, not close in proximity, or do not have the same upgrades as your home. Use your other data points and common sense to set the right price. Note: when you sign up to advertise your home with Homie, you get a desktop appraisal included for free!
For more details, see the blog post, What You Need to Know About Appraisals.
Now that you’ve studied your local market or received an appraisal, you will have a list of several homes that are similar to yours. The value of your home is likely somewhere in the range of the sale prices noted in the comps you have researched–on the higher side of the range if your home is larger, in better condition and has more or better amenities, and on the lower side if it is smaller or has fewer extras. This is the time to be objective and look at the house as an outsider would. The factors that matter most to a home’s value are location (corner homes and homes on busy streets usually sell for less), square footage, number of rooms, lot size, landscaping, garage-space, and meaningful upgrades (such as remodeled kitchens, bathrooms and finished basements).
Evaluate your home and be honest.
Like I mentioned above, desktop appraisals may not be perfectly accurate and sometimes your appraisal will come in higher or lower based on factors out of your control. For example my husband and I recently sold a house where the desktop appraisal came in thousands of dollars lower than we expected. We believe this happened because there was a run-down home on our street that sold six months prior for $25,000 less than other similar homes. We knew the home hadn’t been updated in thirty years and was in terrible condition. Because we had done the research on that pricing anomaly, we chose to set our price to match other similar houses, knowing that our home included major renovations. When our home sold, the lender’s appraisal (which included a site visit from the appraiser) came back at the asking price we had selected.
Bottom line, an appraisal is a very good starting place, but you should do some research and use your inside knowledge about the neighborhood and the condition and circumstances of other homes to help narrow down your price range.
Supply and demand
When picking a listing price, keep supply and demand in mind. If you put your home up for sale when buyers are eager to buy and inventory is low, it’s likely that prices will rise as time goes by. This is called a seller’s market. Utah was considered to be a seller’s market in 2015 and many professionals predict it will continue that way throughout 2016. This will drive the price of your home toward the upper part of your price range.
Conversely, a buyer’s market is when the supply of homes exceeds the demand. A buyer’s market is likely to bring in lower offers as buyers have a lot of inventory to choose from. A simple google search for “home inventory” and the name of your city or neighborhood will help you understand if inventory is low or high when you are ready to put your home on the market.
If life circumstances dictate that you must sell your home quickly, you will have less leverage in the marketplace. You don’t have the advantage of saying no to low offers in the hopes of attracting the perfect offer. This reality should nudge your listing price toward the lower end of the price range suggested by the appraisal, to ensure a quick (or maybe even multiple) offer(s). In cold-weather states, you are also more likely to get a better price for your home during the hot selling season from March to August, so if you can plan your move for this time period, you may be able to get a premium and when you list during these months, you should consider moving to the top of your price range.
If you’re looking to get the most money out of your home sale, you might be tempted to set a listing price substantially (20% or more) higher than the price range suggested by the comps, hoping for a lucky offer. Don’t do it. Your buyers will likely have access to the same pricing information you do and won’t make offers. Even worse, they might make an offer only to find out during their due diligence period that the home is overpriced, leading them to walk away from the deal. Homes that are overpriced languish on the market, causing buyers to be wary that your house has major issues. If you drop your price to attract buyers, some buyers will suspect you’d be willing to drop even lower, causing them to give low-ball offers. According to the National Association of Realtors, largely-overpriced homes end up selling for 2% less than their more reasonably priced neighbors, and take much more time and effort to sell.
Say your desktop appraisal came with comps between $235,000 and $255,000, and based on your research you should set the list price on the higher side of the range, say $252,000. You should consider that many buyers put a price cap on the homes they will tour. A number like $250,000 is a round number that buyers might set on their search engines when they look for homes. If you price yours at $252,000, you could miss out on these buyers. This doesn’t mean you need to drop the price, but it’s something to keep in mind.
In setting your price you should also consider what you need to walk away with after the deal. In order to do this, you need to do some calculations that take into account all the expenses of selling. You should understand how much you need to pay off on your mortgage, how much your closing costs will be (typically between $1,200-$2,000) whether you will have to pay a buyer’s agent commission (typically 3%) and whether you will likely have to make any repairs or offer cash concessions to get the deal through the buyer’s due diligence process. When you subtract these expenses from the list price, do you end up with enough money for what you have planned?
Final List Price
Once you’ve taken these things into consideration, pick what you think is a fair list price. You may consider adding 1% to that number. This is the start of negotiations, so if someone falls in love with your home right away and makes an offer you may be able to capture that 1% premium. If you are sticking within the price range of comparable homes, you now have a good chance of attracting serious buyers!
You’re All Set
Now that you’ve got a price in mind, remember that you and your buyer will save thousands of dollars and have more room to negotiate if one or both of you has no agent. Sign up to sell with Homie today.