Whether you’re selling your personal property or an investment property, setting an accurate selling price is essential to getting it sold quickly and to maximize profit.
Many sellers make the mistake of comparing their home to their neighbors’ homes which often causes them to overprice theirs. There are better strategies than merely looking at nearby homes to set an accurate asking price.
If you overprice your property, some buyers will never look at it at all. They or their agent will know the house is overpriced just by looking it up so they’ll exclude it from their list. Later when you’re considering lowering your price, those potential buyers will have already moved on.
If you underprice the home, you could lose money. However, in a strong selling market, underpricing a property can sometimes generate multiple offers which can ultimately drive the price up. So, the best way to price can vary depending upon the strength of the real estate market. Knowing your market and market conditions is a must.
To come up with an accurate property value, finding comps is essential. Comps are similar properties that have recently sold in the area. Appraisers prefer to go back no more than three months in time and to look at homes no further away than half mile if the area is well populated. If the area is rural, an appraiser will be forced look further out and longer back in time.
When searching comps, consider:
Age of the property – it’s important that the comps you use were built within the same time frame as your property
Already sold homes – when using an agent, they’ll give you a Comparative Market Analysis (CMA), which are comps from recent sales in your neighborhood. This analysis looks at:
- the details of the home
- how many days on the market
- the price the home sold for
If you’re not using a realtor, you can come up with your own CMA. But remember, always look at prices of homes that have SOLD, not for sale houses because they may not sell for their asking price.
Square footage – square footage of your comps should be within 10 percent of your property
Number of bedrooms and bathrooms – should be the same as yours
When pricing, use an odd number – Numbers do have a psychological impact, which is why psychology pricing encourages people to price with an odd number that is a little under a round number. This means asking $299,000 instead of $300,000 or $149,995 rather than $150,000.
What if you overprice?
It’s actually more common than you think. A Zillow Consumer Housing Trends Report says that about 60 percent of sellers end up lowering their asking price at least one time. If you realize you’ve overpriced, adjust quickly. What’s “quickly”? If you have no offer after three weeks, lower your asking price. We lower our pricing after only two weeks. The market lets you know almost immediately if you’re overpriced. If you’re priced right, you will have lookers and your lookers will make offers.
Let’s say your comps come in around $200,000. If there are a lot of houses on the market in the same price point (competition for yours), you may need to price your home under $200,000 and perhaps settle for less than you were hoping. If there are not many houses on the market, you can probably increase your asking price. If the market is reasonably balanced, make adjustments based on market trends. Again, knowing your market and market conditions is a must.
Setting an accurate asking price is essential, so do your homework or make sure your realtor is doing theirs. If you’re an investor, you’ll get better and better at setting asking prices just by nature of being in the business consistently. Experience is always the best teacher.
Final point: we always price our houses to sell. I emphasize the fact that I want my properties SOLD, not for sale. The time and the mental and emotional energy many people use holding out for a few thousand dollars is actually eaten up by holding costs and the extra time it takes away from focusing on that next property.
Learn how to price your properties correctly; don’t hold out for the last penny; and Get Your Properties SOLD!
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