The Right Strategy To Price Your Home

Dated: 03/15/2017

Views: 262

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So let's set the stage - Beth and Jim are looking to sell their home, and they keep seeing news stories about rising prices in Nashville, soaring property taxes, and 80 people a day moving into town. They know they have equity in their house, they just have no idea how much or how to get the best deal on their home. The names are fake, but the situations are real.

When we sit down to talk about listing Beth and Jim's home, we're going to cover a lot - what the market's doing, how we're going to promote their home, and setting expectations that we will meet or exceep. The biggest question they always have - what is my home worth?

It's a difficult question - your home means the world to you. It's where you've raised your kids, built memories, and grown as a person. For years, it's been the anchor point of your life, and it's not easy to divest yourself from that. As your agent, we're going to pour over every recently sold (and unsold) house that's similar to yours to find a price that matches what current buyers are willing to pay, and bank appraisers agree is an acceptable risk. Hopefully, that number coincides with what you need to achieve your goals - but if it isn't, we still have a duty to be honest with you.

What we don't always talk about is the strategy behind that price. In the same way that retail stores spent thousands on studies to determine that you're more likely to buy a product at $4.99 than you are at $5.00, real estate agents know that setting the right initial market position can mean the difference between a quick, smooth translation and a struggle for the finish line. For instance - pricing your home at $299,999 seems logical, but we know that most people searching online set their price ranges in $25,000 increments.

At that price, you'd catch anyone with a maximum price of $300,000, but miss anyone who had that set as their minimum.

Now let me just get this out of the way - there is no one-size-fits all plan for pricing a home. Every market, every neighborhood, every home has it's own quirks to consider. What works for a starter home in Murfreesboro that's likely to appeal to young families and investors, does not work for a luxury property in Green Hills. More over, pricing gets into theory and even some psychology, and is up to debate - remember that we're trying to appeal to what people THINK something is worth. As agents, we have to carefully consider our target demographic and how to meet the goals of our seller.

Just because no two houses are the same doesn't mean we can't dive into a few case studies of common pricing strategies, and find some valuable lessons when it comes to for you to list your home.

Case One: Aim High and Hope

It's hard to imagine now, but in the pre-Zillow and days, the only way to see what houses were available was to turn to the local paper, or tap an agent to get access to the big book of listings. Information was purposefully scarce, as buyers had only their agent to rely on. There was often little expectation that a home would sell on the first day, so it was a common strategy to over-value the home, on the assumption that most buyers are will low ball and they'd negotiate to the middle. Worst case, you could always do a price drop in a month or two if you weren't getting enough interest.

Today, that's hardly an option - though that's not to say people don't try. The consumer has almost infinite access to what you paid for it, what your neighbors sold theirs for, how many days it's been on the market, and how many time's you've adjust the price. Listing sites like Truila and Zillow even have simplified graphs that will tell you in one glance if it's over priced.

So put yourselves in their shoes - you see a lovely home that's been on the market 183 days, and they've dropped the price twice in that time. What's running through your head?

Is the seller desperate? Then I, as the buyer, can low-ball and will have ample room to negotiate in a counter. Is the seller unrealistic? Maybe they aren't serious about moving, and I don't know that I want to deal with them when repairs and negotiations come around. Is there something wrong with it? Other houses sell so fast, if yours is still sitting there it has to be for a reason, and do I really want to get involved in that?

There are certainly cases and markets where this strategy can be more viable, but in the age of internet and shrinking attention spans, you rarely get a second chance to grab a buyer.

Case Two: Giving Away The Farm

More often than you'd think, we have seller who needs to get out for one reason or another. Sometimes it's because the house is costing them too much and they need out from under it, but often it can be a relocation for work or the need to sell to close on their new home. Either way, people in this position are often too eager to under-value their home.

Now, keeping the price just under the market isn't always a bad idea. Often, it can create a feeding frenzy and there's rarely a "bad" multiple offer situation. However, problems start to arise when the seller starts engaging with other agents or buyers and dropping hints about what they're willing to give up. Things can get worse when they're too eager to accept the first offer that hits the table, and won't negotiate on repairs or requests that cost them money.

In markets that are on a downward trend, pricing under-value is often the smart way to go. It can be a hard pill to swallow, but you have to consider that - in a slow market where appraisers know values are sinking - you can end up chasing the market with price drops and finish later and lower than if you just under-valued from the start.

Ultimately, it's the seller's decision on what's best for them, but I can tell you I've seen people give up thousands because they said the wrong thing at the wrong time and left way too much space for the other side to negotiate.

Case Three: The Sweet Spot

So here's the ideal situation.

You house hits the market - it's perfectly priced to be on trend with the market and where the appraisers are taking it. It's priced so that the maximum number of people will see it when searching Zillow. The photos are professional, and it hits just before the weekend because we know it'll go out on the "Just Listed" e-mails and we'll get a slew of showings that first weekend. If we know it's a house that's in high demand, we'll even restrict the showings until an open house so that all the buyers see each other and realize just how hot the property is - resulting, we hope, in multiple offers.

The more offers you have, the more options and leverage you have. More than that, if the buyers know to expect stiff competition, they tend to bring their highest and best, and leave a lot of contingencies (ways for them to back out of the contract if things go south) on the table. When it comes time to negotiate for repairs, you'll potentially have back-up offers and continued interest to wield against the other side.

Whatever strategy we adopt, we can often tell how things are going to work out based on that open shot and first weekend. It's critical that we have our marketing on point and pricing structured perfectly to maximize interest. Now again, that depends on the house. The higher the price and less desirable the area, the more the buyer pool starts to shrink. That puts it on us, the agents, to make sure we're clear about our expectations and how we help you get to where you need to be.

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