Probably the biggest challenge we face as homeowners is selecting the “right price” to market our property. No one wants to, or should, sell their home for less than it's worth. For most of us our home is our primary asset, and the foundation of our financial security. Determining a home’s value often involves a subjective and unscientific process, open to a vast margin for error. This can be further complicated by personal needs, emotional investment, and misinformation provided by optimistic Realtors who often tell you what they think you want to hear, rather than what you need to hear.
There's a counter intuitive, ironic truth in real estate that “to get more, you need to ask less”. The reality is that pricing too high often results in getting less. The strategy to build in room to negotiate, believing, “we can always bring it down later,” leads the vast majority down a path to a less favorable outcome.
The market is extremely sensitive to price. The simple truth is, in the hands of a skilled negotiator, with massive impact marketing techniques, a well-priced property will attract more offers and sell quickly for top dollar! A recent example was my listing at 4564 Duart Rd which had been previously listed for 119 days by another Realtor for $1,250,000 and expired without selling. Our team listed it for $1,199,000. We launched a successful marketing campaign and it sold it in just 4 days, with five competing bids, for $1,300,000.
There are exceptions and variables that result in outcomes which cannot be readily predicted or computed with logic. For example, the Grandparents who can afford to pay far above “market value” to live next door to their grandchildren. Aside from lottery like luck and the speculation of market values rising, the reality in my experience is clear that even in these cases, if the Buyer was put into a position to compete, they’d be likely to pay more than if they were the only Buyer trying to negotiate the purchase.
Today’s age of "instant access to information," has Buyers waiting in the wings for new listing information. Typically an immediate judgment is made upon seeing new listing information by Buyers and their Agents ranging from, “Wow this seems like a good one, how soon can we get in?” or “This looks overpriced!”
The difference in psychology is massive between the Buyer who finds a property they’re afraid to lose, versus a property that seems interesting, but overpriced.
New listings typically get lots of attention, however the Seller is less likely to be flexible to negotiate on the price. A valuable tip Buyers should consider is rather than focusing on new listings that just hit the market, instead focus on the Seller who’s home has been listed for 190 days and has been progressively adjusting his price down. Over time, a Seller typically becomes more open to being flexible with the price!
In the market today demand outpaces supply in many regions of the country. Pricing a house is probably the biggest challenge Real Estate Professionals face. Sellers typically want to price their home higher than is recommended and is in their best interest. Often Agents go along with the wrong price to get the listing, secretly hoping to bring it down later. The best Agents are committed to what is in the best interests of the Seller and are prepared to tell the homeowner the truth up front, running the risk of not getting the listing.
There is no “later.”
Many Sellers believe, “If the home doesn’t sell for this price, I can always lower it later.” However, research proves that homes that experience a listing price reduction sit on the market longer, ultimately selling for less than similar homes.
Listing Price, Time on Market, and Ultimate Selling Price: Causes and Effects of Listing Price Changes
John Knight, recipient of the University Distinguished Faculty Award from the Eberhardt School of Business at the University of the Pacific, actually did research on the cost (in both time and money) to a Seller who priced high at the beginning and then lowered the price. In his article, Listing Price, Time on Market and Ultimate Selling Price published in Real Estate Economics revealed:
“Homes that underwent a price revision sold for less, and the greater the revision, the lower the selling price. Also, the longer the home remains on the market, the lower it's ultimate selling price.”
Additionally, the “I’ll lower the price later” approach can paint a negative image in Buyers’ minds. Each time a price reduction occurs, Buyers can naturally think, “Something must be wrong with that house.” Then when a buyer does make an offer, they low-ball the price because they see the Seller as “highly motivated.”
Pricing it right from the start eliminates these challenges.
Information about price changes during a home's marketing period is typically missing from data used to investigate the listing price, selling price, and selling time relationship. This paper incorporates price revision information into the study of this relationship. Using a maximum-likelihood prohibit model, we examine the determinants of list price changes and find evidence consistent with the theory of pricing behavior under demand uncertainty. Homes most likely to undergo list price changes are those with high initial markups and vacant homes, while homes with unusual features are the least likely to experience a price revision. We also explore the impact of missing price change information on estimating a representative model of house price and market time. Our results suggest that mispricing the home in the initial listing is costly to the Seller in both time and money. Homes with large percentage changes in list price take longer to sell and ultimately sell at lower prices. Copyright 2002 by the American Real Estate and Urban Economics Association.
Don’t build “negotiation room” into the price.
Many Sellers say that they want to price their home high in order to have “negotiation room.”
But, what this actually does is lower the number of potential Buyers that see the house and dampen the enthusiasm of those who see it. We know that limiting demand like this will negatively impact the sales price of the house.
Not sure about this? Think of it this way: when a Buyer is looking for a home online (as they are doing more and more often), they put in their desired price range. If your Seller is looking to sell their house for $400,000, but lists it at $425,000 to build in “negotiation room,” any potential Buyers that search in the $350k-$400k range won’t even know your listing is available, let alone come see it!
A better strategy would be to price it properly from the beginning and bring in multiple offers. This forces these Buyers to compete against each other for the “right” to purchase your house.
Look at it this way: if you only receive one offer, you are set up in an adversarial position against the prospective Buyer. If, however, you have multiple offers, you have two or more buyers fighting to please you. Which will result in a better selling situation?
The Price is Right
Typically homeowners have an idea of value for their home that exceeds actual market value. In fact, of the many thousands I’ve met over the years, there have only been about a dozen who I’ve had to convince their properties were worth more than they thought! There are a number of contributing factors to this. Most significant of which may simply be the lack of information readily available about how much properties have actually SOLD for and much exposure to asking prices. The worst part of that is that we see much more of those that are most overpriced as they are around longer and exposed more while the well-priced listings often sell with no apparent advertising at all!
Great pricing comes down to truly understanding the real estate dynamics in your neighborhood. Look for an Realtor that will take the time to simply and effectively explain what is happening in the housing market and how it applies to your home. You need an Agent that will tell you what you need to know rather than what you want to hear. This will put you in the best possible position in the market.
A few more points on pricing from Ron with RE/MAX
Attracting Buyers is the name of the game. As a Seller, you have two goals:
- To get the most money possible
- To sell as quickly as you can.
Be realistic. Price is the number one factor that most home buyers use in determining which homes to view. Although the price is set by you, the Seller, the value of the home is determined by the Buyer. Don't allow your enthusiasm to warp your judgment and lead to overpricing - a mistake you can't afford to make.
Here are some factors to consider to help you sell your home. This information is not all-inclusive and does not replace the value of a personal consultation.
What Affects Your Asking Price?· Urgency. How quickly must you sell? · Competition. Are there just a few or many homes available in your price category and area? · Available Financing. Does your home come with an assumable loan that is below today's rate? What are the current home loan interest rates? What financing alternatives are available for your home and area? · Competitive Market Analysis. Do you know what similar homes in the area sold for within the last six months? · Expenses. What are your selling costs? What Doesn't Affect Your Asking Price? · Original Cost. Your price is determined by today's market. · Investment in Improvements. Potential Buyers will evaluate your home (i.e. wallpaper and carpet) and may include the costs to remove or replace in their Offer. · The Cost to Build Your Home Today. A replacement value is determined for insurance purposes only. · Personal Attachment. Prudent Buyers purchase based on their emotions, not yours. · Neighbour's Claims. Don't listen to what your neighbours tell you is the fair market value for your home. Other homes in your neighborhood may not be as similar as you think. Also the terms accepted by both the buyer and seller greatly affect the sale price. What Happens to an Overpriced House? · You'll Help Sell the Competition. The "correctly priced" homes look even better if yours is overpriced. Most Buyers are competitive shoppers. · Your Home Will Stay on the Market a Long Time. At any time there are many Buyers waiting and watching for new listings and a trickle of new Buyers coming into the market. Did you know that 80% of your potential Buyers will see your house in the first one to two weeks? If you don't sell them then, it can take six to twelve months to replace them with an equal number of newcomers. · You'll Lose Market Interest and Qualified Buyers. Serious Buyers use the value, quality and price of similar properties as deciding factors. · A Negative Impression is Created. People will wonder why your house is still on the market - they'll believe something is wrong with your home. · You (The Seller) Would Lose Money. You may have to make extra mortgage payments as well as incur taxes, insurance and unplanned maintenance costs. · You (The Seller) May Have to Accept Less Money. Studies show that the longer a house is on the market, the greater the discount off the list price. Often a seller will accept less than fair market value in order to sell because of an approaching deadline. · There is the Potential for Appraisal Problems. The Appraiser from your Buyer's lending institution must agree that the home is worth the asking price. If the Appraiser believes the price is inflated, the loan may not be approved.
Look to Ron Neal and The Neal Estate Team with RE/MAX For The Truth and The Answers You Need!
As you can see, there are a multitude of factors that determine the asking price of your home. Finding this price can be a difficult task. That is why thousands of satisfied homeowners, like yourself, turn to experts. Ron Neal and The Neal Estate Team will tell you the truth, what you need to hear, not what we think you want to hear. We have the tools necessary to compute the fair market value of your house quickly and accurately while allowing for personal considerations (such as the date by which you must sell). Ron Neal & The Neal Estate Team with RE/MAX Alliance will also confidently answer your questions about listing, pricing and showing.
Our goals are the same as yours:
- To get you the most money possible;
- To sell your home as quickly as you can;
- To make selling your home a pleasant and profitable experience for you.
When You Want to Price Your Home to SELL FAST for TOP DOLLAR
Count on Ron Neal & The Neal Estate Team of RE/MAX Alliance
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The Neal Estate Team is your #1 source for all of your Victoria BC real estate needs. Get in touch with us online or by phone at (250) 386-8181 to speak with a Victoria real estate buying or selling expert today. With decades of experience as a top selling Victoria REALTOR® and ranked in top 1% globally with over 4,000 transactions and $1 Billion SOLD, Ron Neal & The Neal Estate Team have the industry experience and market knowledge to help you make smart and informed buying or selling decisions.