Step 1 – Understanding Market Conditions And Pricing Your Home
This is by far the most important, yet most often misunderstood step. Failure to understand the market and properly price your home is the single biggest factor that will cause it to NOT SELL for top dollar and sit unsold for months on end!
To make sure that this doesn’t happen to you, you must first focus on two main areas:
1) CURRENT MARKET CONDITIONS
2) YOUR TIME REQUIREMENTS
Let’s look at how current market conditions can affect selling and pricing. Suppose that there were very few homes on the market for sale, and a large amount of eager buyers. What would that do to prices? That’s right, they would go up. This is referred to as a seller’s market. Conversely, if there were very few buyers and lots of eager sellers, what would that do to prices? Sure, they would go down. That would be a buyer’s market. It is the basic laws of supply and demand.
Of course, that is a very simple example. Your local market may be at one of the extremes, or anywhere in between. You must consider things like interest rates, new home sales, and local economic factors such as large businesses opening or closing, etc.
To properly analyze your current market conditions, you will need to research homes currently available, under contract, and recently sold in your area. There are several ways to get information on homes that have sold.
The first way is to do the research yourself. The sales prices of homes that have sold and closed is public record, so you can go to the county or city websites and dig for all of the information. I don’t know exactly how long it would take, but don’t make any other plans that day!
To get the most complete information, give me a call. With the click of a few buttons on my computer, I can have a complete computerized market analysis of your area (including available, under contract, and closed homes, average price per square foot, average days on market, etc.) printed out in a matter of minutes. I will be happy to bring it over for you, with absolutely no obligation, sales pitch, or pressure to list.
Once you have the market information on homes in your area, take some time and drive around the area, stopping in front of the homes on your list. Make notes about the appearance and other details of the homes. If any of the available homes are having an open house, take a look inside. Be up front with the owner or agent, and tell them, “We live in the area and are planning to sell our home ourselves. Do you mind if we take a quick look?”
This driving around is an important step, because it gets you more familiar with the market, and will help you make a more objective decision on pricing your home. Next, sit down at the table and review the data and make honest, unbiased comparisons based on criteria such as:
OTHER FEATURES AND UPGRADES
Start by taking a brief look at the homes that are currently available for sale. The purpose of looking at the available homes is to get a feel for what other people in your area are asking, NOT to use the information to base your price on.
A seller can ask any price for their home, regardless of what it is really worth. Many of the available homes are priced in dreamland. These prices DO NOT reflect the realities of the market. In fact, professional appraisers cannot use available prices at all when appraising a house, only closed sales within the past six months.
Now move on to the pending and closed sales. This is the real bottom line, where the rubber meets the road. It is the hard reality—what buyer’s were willing to pay and what seller’s were willing to sell for in a free, open market. Study the closed sales. The first thing you may discover is that the actual sales price of the neighbor’s home that sold 2 months ago is less than what they told you when you saw them out in the driveway. Imagine that!
Identify the homes that are similar to yours, ones that are nearly the same size, style, etc. Then look for items that are different like a remodeled kitchen, pool, finished basement, etc. and make adjustments.
DO NOT make the mistake of thinking that maintenance items can be considered as improvements that increase value. Things such as a new roof or new heating/cooling unit are really maintenance items. While these items may make your home sell faster, they typically do not add much to the potential asking price of the home. After all, a buyer will expect a home to have a roof that doesn’t leak and a properly functioning heating/cooling unit.
For example, let’s say that there are 4 homes like yours that have recently sold, priced at $166,500, $169,900, $179,000, and $183,900. The home at $183,900 has some extra features that yours doesn’t, but yours is superior to the one that sold for $166,500. Overall, the two other homes are pretty close to yours. This gives you a current price range of $169,900 to $179,000. Now all you have to do is pick a price within this range!
Once you determine the proper price range for your home, how quickly you want to sell will dictate whether you price at the lower or higher ends of the price range. This is where your own time requirements come into play. Your own personal situation will have some effect on the price you ask for your home. It is easy to see that if you needed to sell your home within 4 days, you would have to price it lower than if you had 4 months to sell it. If you were not in a major rush, but still wanted a sale in a reasonable amount of time, you might decide on an asking price of $175,000.
If you are still having difficulty determining the proper price for your home, you can call me for assistance (no obligation, of course), or hire a fee appraiser, which you can find with a quick Google search. It is natural for every homeowner to have a certain pride of ownership and to think that their home should be worth more than the one down the street.
This is where you must be objective, and try to take your emotional attachments to your home out of the situation. You must be reasonable. Unless you are in a total sellers market, if you price your home too high IT WILL NOT SELL!! It will sit on the market for months on end, getting the reputation of a problem property. People will assume that since the home has not sold, there must be something wrong with it. They will start to avoid it like the plague! Even if you then drop the price, the damage is already done. The stigma is there and you may need to drop the price even further to entice skeptical buyers.
DO NOT FALL INTO THIS TRAP! Improper pricing is the single biggest mistake that sellers make. Don’t let this happen to you. Make sure that you set a reasonable price for your home right from the start.