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Pricing Your Home Right: Art or Science?
When you and your REALTOR® sit down to analyze comparable homes and recent sales, you may find that prices of homes similar to yours can be thousands of dollars apart.
It’s tempting to pick the highest price and say, “Let’s list it here.”
That’s a strategy that usually works in an accelerating market, but what if your neighborhood is flat or declining? Would you pick the lowest price and list it there? Probably not.
That’s why pricing your home is as much an art as a science.
The science of home price analysis
As a home seller, the science is choosing the right price at which your home will sell. How do you do that? By analyzing your local real estate market conditions.
You want the highest price, while the buyer wants to pay the lowest price. The only way your home will sell at the highest price possible is if your buyer agrees to your home’s value.
To best determine market value, you have three important tools: CMAs, appraisals, and your REALTOR’s® knowledge of the market.
The comparative market analysis
A comparative market analysis (CMA) is a side-by-side comparison of similar homes for sale and recently sold homes in your neighborhood. CMAs are composed of data compiled for comparison purposes by your REALTOR’S® multiple listing service (MLS.)
REALTORS® use CMAs to illustrate the range of homes in the marketplace and the features that make them unique, including age, location, number of bedrooms, baths, room sizes, updates, condition, etc. As a seller, you should be able to see where your home fits – in the top or lower price range of similar homes.
Buyers get CMAs from their practitioners to help them understand the selection in the market, and to prepare them to make an offer on a listing.
CMAs are typically used by buyers and sellers before an offer is made.
An appraisal is a market analysis performed by a professional appraiser using a variety of sources, including MLS data and conforming loan formulas.
Appraisers most often work for lenders to determine market values, so that lenders can weigh the risk of making a loan to a home buyer. Appraisals come after an offer is made when the buyer applies for a loan. Even though the buyer pays for the appraisal, the lender uses it to determine whether or not to make the loan at the contract price.
Buyers have one advantage over sellers when it comes to appraisals – their bank has the last word. If the appraisal doesn’t meet the contract price, the bank refuses to make the loan, unless the seller agrees to a new contract price.
You can hire an appraiser to help you determine at what price a bank will loan a buyer money to buy your home.
The art of the deal
It’s your REALTOR’S® knowledge and experience in the local market that can take the numbers and put them with other market conditions. She or he will help you read the market, and help you choose the right price, based on current trends analysis and news.
Her experience with current customers tells her how buyers are behaving today. Are they paying top dollar, or saying they’re waiting for prices or interest rates to drop?
His network of contacts provide valuable intel into whether other sellers have run into problems. He helps you avoid the same issues. For example, did another seller lose a deal due to an inadequate disclosure or bank appraisal?
Your REALTOR® knows your motivation, what you need to get out of the home financially, and your terms. While it’s her job to help you meet your goals, it’s also her job to help you face the realities of the current marketplace, whatever they are.
His job is to help you price your home high enough that it sells quickly, without sitting on the market longer than you can afford. By the same token, his job is to make sure that you don’t list so low that the market questions the condition of your home.
And that’s where the art of the deal comes in – putting all the moving parts of the market together.
It’s an art and a science
Ultimately, you are the one who will choose your listing price, based on your understanding of all the data. And the results will tell the tale.
You can’t list and sell your home for any more than a buyer is willing to pay.
And that makes pricing it right both an art and a science.