The trick of pricing a home to get it sold is staying ahead of the market. That can be tricky in a recessionary, falling, market. In this article I will explain exactly how to price your home to sell.
Get sold before your neighbor
This is commonly referred to as competitive market analysis or CMA for short. Most CMA’s reflect what a bank would want to see, done by a Appraiser through what we call the “comparative approach”. Basically they find similar homes that sold and order those homes along with yours in terms of what they offer, key features. Then effectively they plot a line, figure cost per square foot for yours, and extrapolate a value. It’s a bit more complex but for all intensive purposes that’s how it works.
This doesn’t well reflect what a buyer is willing or able to pay. That is driven more by supply, demand, and economic conditions and less by past indicators. It’s important to look at current inventory and get an idea of what buyers can afford to pay. This is akin the old island scenario:
Three people on an island. One had a banana for sale. The other two want to eat, so they propose to buy the banana. The person with most money get it. Now flip the scenario. Two people with bananas one with money. The lowest sale gets the money. If the seller is limited by how much money is on the island.
We establish your home as a product and work to stay ahead of the competition’s price. Additionally, we can only market the home for what money is available in the market. If interest rates are high we maybe constrained by what a person can pay per month in their loan.
I actually have experience in breaking the mold so your home sells faster and for more money but that’s a topic for another article. Making a better value proposition as I am eluding to, doesn’t always work in a market constrained by economic factors such as home affordability though. There we simply have to price according to what money is available in the market.
The CMA is our starting point. We list at what is the most competitive price and market as aggressively as possible to get your the next buyer that enters the market before your competition gets the sale.
Searching for the buyer
From this point on we’re searching for a buyer. It’s VITAL we speak with as many buyers as possible and ask them exactly what they are looking for. This ensures we’re meeting buyers right where they are and not searching blindly. Many times a home could sell by adjusting the marketing, and not the price. We want to make SURE we’ve tested a price point, spoke with buyers if there are any, before we reduce the price.
Budgeting time
We establish a time budget based off of average days on market. This works for most homes. If you have a luxury home or niche property it’ll require a custom time budget. Otherwise, average days on market is a good indicator for a home in the city or a large community. I further advise my clients we need to have a time budget of the average days on market or one month whichever is shorter. What this tells us is, if we haven’t got a contract within the average days on market then we’re missing the market and need to adjust something. We revisit the marketing on this time basis to (1) improve the value preposition and or (2) adjust the price.
Adjusting Price
There’s several methods to adjusting price. First, we’ll want to revisit the CMA to make sure our price is not getting undercut. I monitor that every day so we’re up to speed. Being the most competitively priced home doesn’t always get you sold though. Case in point a falling market, we don’t know exactly what buyers can afford so we need to continue adjusting price till we find them.
Get an active buyer to tell you the value
My goal when I speak with buyers is to get them to make an offer. I want them to step up to the table and play poker with us. If they never play then we never can never win, or in our case get the home sold. Offers are where the rubber meets the road. Once we get an offer we can start negotiating to get you the best terms but without one we have nothing. At least with a verbal we know the price could be as low as they offered but maybe somewhere a bit higher.
Bridging price the gap
Here we look at the average percent difference between what sellers listed at and what buyers paid. I have tools that will calculate this for my clients. We know that say if there’s a 96% List to Sold Price Ratio then buyers and sellers are roughly 4% apart. You’ll want to base a price adjustment on 4% or greater. I advise a price adjustment of one to two times the gap. That is 4% to 8% in this example.
Asset manager approach
Large corporations, even government owned property is sold through asset managers. These managers have hundreds if not thousands of homes to get sold. After the subprime mortgage crash the market was flooded with bank and government owned property. They reduced the price like clockwork 10% per month until the home sold. And they got the homes sold. This approach is very aggressive but works to get property sold.
Minimum reduction
It doesn’t matter if your property is $95,000 or $450,000. Any price reduction should be $10,000 to be meaningful. When I started agents would reduce the price by $100 just to get a “price reduced” badge on their listing. However, this doesn’t really take into account buyer needs. We’re not really bridging the gap between where we are as seller and where buyers are by tiny little price reductions. The badges may have had some impact in visibility but not in terms of getting the home priced right to get it sold. Case in point, you need your price reduction to be impactful, minimum price reduction is $10,000 to get buyers attention.
Conclusion how do I price my home
Pricing your home maybe some combination of above. The important thing is we don’t sit idle on the market. We’re constantly refining your listing, property, price, and what you are offering until we ultimately meet the buyer for your home.
I’ve over a decade of full time experience getting homes sold. Typically price is just one factory in that equation. I will advise you on every factor to make your sale as smooth as possible. Contact me below and let’s get the process started.