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Pricing Your Home For Sale

August 31 2009

Is your home worth your asking price? The best way to answer that question is to separate what’s relevant to home buyers from what’s not relevant.

Pricing Your Home For Sale

Starting with the bare basics, home buyers choose homes based on:

Price – their lenders tell them what they can afford
Location – they know where they want to live and why
Condition – they want homes that are well-maintained and move-in ready

They look at the available inventory – your home and its competition.  The greater the inventory, the more room they have to negotiate terms.

They narrow their choices to a short list, based on what they perceive to be the best value.

They buy according to what’s most important to them – price, neighborhood, and/or condition. For example, a buyer who wants a certain neighborhood may choose a home in less than perfect condition, but only if the price is right.

What you should consider before you price your home

Your market

When home sales volumes increase, prices go up, and inventories of homes for sale fall below about six months on hand, (meaning it would take six months or less to sell all the homes for sale on the market to zero on hand) the market is said to be a “seller’s market,” because the market’s conditions favor sellers. 

When sales volumes decrease, prices decline, and inventories of homes rise above about six months on hand, conditions favor the buyer, making it a “buyer’s market.”

To sell your home in the current market, you have to consider the market’s conditions.
You may adjust your price and terms accordingly.

Your competition

Your competition is not only other similar homes in your area, but what buyers can get if they buy brand-new.  Your buyer is comparing size, number of bedrooms and baths, amenities, updates, views, landscaping, and décor. You can’t put a price on many features, but some qualities, such as fine workmanship, room flow, and convenient storage are simply worth more money to buyers. 

Your urgency

If you’re relocating or have another reason to be in a hurry, you don’t have time to test the market. You have to price your home to get immediate and serious offers to buy.

What’s not relevant to home buyers

Your emotions

If you’re sentimental about your home, remember your buyer hasn’t formed the same attachments. Your buyer may appreciate your home, but will still compare it to other available homes in terms of price, location, and condition before weighing emotion. 

What you paid for the house

Many area home prices have receded as much as five to ten years. Sellers who paid high prices for their homes, purchased too recently to build equity, or took out second liens or equity loans may find that what they paid is not what the home is worth in today’s market. Buyers are only concerned with what they can afford.

What you paid for improvements beyond ordinary maintenance

Your swimming pool may be beautiful and add some value to your home, but some buyers may not want the upkeep or the insurance liability, so they’ll tend to offer less for the home than a buyer who really wants a pool.

What buyers expect is for homes to be properly maintained. Even if a home is in the most desirable of neighborhoods, it will never sell for as much as similar homes if it is in poor condition or lacking updates comparable to newer homes in the area.

Your investment or retirement

No one wants to lose money selling a home. That’s why the government provides countless subsidies to encourage home ownership, including tax relief. In normal markets, homes outpace inflation by about one to two percent annually, but when markets heat up, home owners have the opportunity to net more. The downside is that overheated markets eventually return to the “mean,” or typical appreciation. In doing so, some markets overcorrect, leaving sellers short.

With many employers no longer providing retirement funds, and social security at risk for the next generation, many home owners want their property to fill the financial shortfall. While that’s possible, it’s not a consideration in pricing your home. Your buyer will not want to pay for you to move up, for your retirement, or for equity you may have removed from the property in order to pay for college educations, furniture, or credit card loans. 

The bottom line is that no buyer will pay more than a home is worth in the current market. They may have paid more in the past, and they may pay more in the future, but what they pay today is a matter of supply and demand.

If you want to sell your home quickly and for the most money possible, price to entice buyers, and let them see for themselves that your home is in best condition for the neighborhood.