Deciding on an asking price can be one of the hardest challenges of selling property. You want the price to be high enough to elicit good offers, but low enough to signal to buyers that you're realistic about your property's value. Buyers won't want to spend time inspecting a house and preparing an offer if they think the seller won't accept a reasonable sales price.
I believe that you, the seller, are the best person to determine the asking price. An experienced listing agent, of course, will probably have good ideas about how to price a home strategically. The problem, though, is that the pricing strategy that works best for the agent might not work best for you. Agents have an incentive to sell property quickly, even if that means settling for a low price.
You can always raise or lower the asking price after you get a sense of the market, but it's better to price it too high than too low. If you reject a full-price offer without any contingencies, you may have to pay the buyer's agent a commission for bringing in the offer. A too low asking price might also cause the home to appraise for less.
Step 1: Estimate the market value of your house
The market value of a property is whatever a buyer is willing and able to pay for it. The asking price is usually higher than the market value (typically 1 to 10% higher) in order to allow for haggling.
There’s no way for you (or for anyone) to be certain of your home's market value. I recommend that you make an educated guess after gathering information from several different sources:
Get a $29.95 Complete Property Valuation Report from electronicappraiser.com.
Get free online appraisals of your property from Zillow.com, realestateabc.com, and Ditech.com. (On the Ditech website, click on "Calculators," and then click on "Free eAppraisal.") These websites don't reveal their appraisal methodologies, but I think they're based in part on what's called the "Repeat Sales Model"--taking the price you paid for your property and scaling it upward or downward according to how average property prices in your zip code have changed. If you've spent a lot of money remodeling your home since you bought it, you should fudge the estimates up accordingly. I've found that Zillow gives fairly good estimates for houses in subdivisions but less reliable estimates for houses with unique attributes, like custom-built homes on scenic lots. Zillow does, however, allow you to review the details they have about your home (Click on the "See home details" link) and edit them.
|Don't rely too
much on online appraisals. Here are the estimates I got
from some online appraisal services for four different
properties in California:
A custom house in the city, last sold in 1998:
A custom house with scenic view on the coast, last sold in 2002:
A tract home, last sold in 1983:
A tract home, last sold in 2005:
Get information about "comparables"--houses that are similar to yours that have sold recently. Zillow.com and realestateabc.com are good sources. (Click the "Map comparable homes" link.) So is realestate.yahoo.com (Click on What's My Home Worth? in the Tools section on the left hand side.) Create a separate fact sheet for each comparable, then drive by all of the homes and compare them to yours. Try to guess how much more or less your house is worth compared to each of them, then use these guesses to adjust the actual sales prices of the comparables into estimates of your home's market value.
|Don't use the asking prices of other homes that are currently on the market to guess your home's market value. Asking prices are usually marked up over the market value, and they're sometimes unrealistic.|
|If your home is similar to others in the neighborhood, it will be easier to estimate its market value.|
If your market value estimates are all over the map, consider
hiring an appraiser to give you a verbal appraisal for pricing
appraiser will look at recent sales of comparable properties in your area
and adjust the sales prices to compensate for differences between these
properties and yours. Appraisers
usually charge $200 - $400 to do a residential house.
Don't ask for a written report, however. When you get an
offer, you'll be forced to disclose all material facts about the
house--including any written appraisals you've gotten. If
the appraisal comes in low, it could hurt you.
Don't ask for a written report, however. When you get an offer, you'll be forced to disclose all material facts about the house--including any written appraisals you've gotten. If the appraisal comes in low, it could hurt you.
Don't, however, rely too much on an appraiser's opinion. I
examined three appraisals that were based on adjusting the sales
prices of comparables that had sold recently to account for
differences between them and the subject property. The
adjusted sales prices of the comparables sometimes varied by quite a bit,
requiring the appraiser to rely a lot on guesswork: Property Adjusted
sales prices Appraised
value #1 $717,500 $700,000 #2 $138,500 $148,000 #3 $476,180 $475,000* *This
property had just sold for $475,000 and the purpose of the
appraisal was to reassure the lender that the price was
reasonable. Many real estate agents are happy to provide FSBO sellers with a free
Comparative (or Competitive) Market Analysis (CMA) of their property.
These CMAs show details about properties that have recently sold in
the area, along with their asking prices.
While the CMAs are provided free of charge, expect any agent who
provides you with one to call you frequently in hopes of getting you to
sign a listing contract. Beware,
too, of the occasional agent who will give you an unreasonably high
estimate of your home’s market value in order to get on your good
side and perhaps also to frustrate your efforts
to sell on your own.
When coming up with this value, don't think about what you paid for
the house or what you think it's worth. You should instead try
to come up with the minimum value that would still make it
worthwhile for you to sell.
If you can't afford
your payments or need to move soon, you may be willing to accept
much less than what your home's worth.
Remember that m
These can range from a few hundred dollars in a hot market to
several thousand dollars in a slow one.
contract to close of escrow for you. Discount brokers will
often do this for a few thousand dollars. You can also hire a
real estate lawyer by the hour to review your paperwork.
Commission for the
buyer's agent. We recommend a commission of 2.5 to 3%.
Add your estimate
sales costs to the lowest net sales price you're willing to accept.
This is your reserve price--the lowest price you're willing to
accept. Keep it a secret.
Step 5: Come up with an asking price
at homes similar to yours that are for sale in your area, and go to
as many open houses as you can.
You should end up with
a list of at least four or five competing homes.
Now try to price your
property so that it's one of the better values in your area.
Don't necessarily make it the best value--if you're competing
with a desperate seller or a bank that's selling off repossessed
homes, you might end up in a price war. All you want to
with your asking price is to get buyers to take a look.
out for those websites that will give you "free" online
appraisals only after you provide some detailed information
about yourself. I tested some of them and received e-mails and
phone calls from agents who wanted to meet with me, presumably to
a listing contract. One of the agents gave me a username and
password so I could access appraisal data online. But to get to
the data, I had to agree first to a long list of "Terms of
Use," including this one: "19. By agreeing to these Terms
of Use, Client acknowledges entering into a lawful consumer-broker
relationship as may be defined under state law."
often exude confidence, but don't rely exclusively on their
selling my Sacramento rental, for example, I received a call
from an agent who'd prepared a Comparative Market Analysis
(CMA) for my property that she wanted to deliver in
person. But when I gave her directions, I found that she
was completely unfamiliar with my neighborhood.
may not feel up to it, but you may be the best judge of your
home's market value. You know your home better than
anyone else, and you care more about getting an accurate
estimate. And with all the information about comparables
now available on the internet, you have a lot of data to work
Step 2: Determine the lowest net sales price you'll accept
Step 3: Estimate how much it will cost to sell your home
This may include the following:
Step 4: Come up with you secret reserve price.
Commission for the buyer's agent. We recommend a commission of 2.5 to 3%.
Step 5: Come up with an asking price
Now fudge that tentative price up or down based on the following factors:
Is it above your secret reserve price? If not, then either raise the asking price or think again about whether you should sell right now.
Is it above your estimate of your home's market value? If so, then there's a chance that your estimate is wrong or that competing properties are overpriced.
How quickly do you want to sell your property? The higher the price, the longer it will take on average to sell. If you have lots of time, start with a higher markup and gradually bring your price down. If you’re in a hurry to sell, start with a lower markup.
How certain are you of the home's market value? If you're pretty certain, start with a lower markup. But if you're not at all sure, start with a higher markup or tell buyers you won't consider any offers until the house has been on the market for at least a week or two. This will give you a chance to test the waters and allow more buyers to compete for your house.
Is your property unique? If there are homes similar to yours for sale in your neighborhood, you probably won’t be able to sell it for much more than the market value. In that case, you might want to start with an asking price that's just 1-3% above the market value. If your home is unique, you might find someone who will pay a premium to buy it. Here, you might want to mark up the asking price by 10% or more.
You'll usually attract a lot of interest during your opening weekend, since agents and prospective buyers give new listings lots of attention. If you start with too high a price, you may lose an opportunity to make a quick sale.
Are there lots of properties in your price range on the market? If not, someone might be willing to pay a premium to buy yours.
Is the market very hot in your area? If so, you may want to lower the asking price to attract interest and set an offer date. Click here for more information on this strategy.
Are prices headed up or down?
If home prices are headed up, there’s less harm in
starting high. But if
prices are headed down you might want to set your asking price closer
to the market price. In a falling market, many sellers have
trouble facing the fact that their houses have lost value, so they
set their prices too high. They
come around only after their properties have languished on the
market for months. If
you are quicker than others to recognize and accept that the market
has changed, you’ll have a distinct advantage.
By pricing your house realistically and selling it quickly,
you can get out of a falling market early.
If a property is on the market for too long, it sends a signal that it's either overpriced or that it has a serious problem. If you don't get much of a response to your initial starting price, bring it down after a week or two.
Are you cooperating with buyers' agents? If you're NOT willing to pay a commission to buyers' agents, I recommend that you lower your markup. This will send a signal to buyers that you intend to share some of the commission savings with them.
How aggressively do you plan to market the property? Spending money on things like classified ads, professional photographers, and staging will often get you a higher sales price. Raise the asking price if you plan to splurge on marketing.
You may want to try the old "mark it up, then reduce the price" trick. Buyers sometimes confuse price with value. If you ask $475,000 for a $450,000 house, then cut the price to $450,000, some buyers may think they're getting a good deal on a $475,000 house.
Instead of setting the asking price at, say, $469,999, set it at $470,000. Buyers often instruct their agents to search within ranges, like $460,000 to $470,000 or $470,000 to $480,000. If you price it at $470,000, you'll fit into both ranges.
I sold a
Step 6: If you don't get an offer within two weeks, consider lowering your price
already noted, housing prices are “sticky downward.” While stock
prices can plunge dramatically in a single day, housing prices
sometimes take years before they fall enough to restore the balance
between supply and demand.
Don’t blame buyers for this. They always adjust quite readily to the new reality of lower housing prices. Sellers, though, are slow to come around. And so we must endure a falling real estate market while they gradually whittle their prices down to the new levels.
Here are some reasons you should consider lowering your price until it sells:
1. It’s often best to get out of a falling market as early as possible.
From 1991 to 1996, the median price of a home in California fell from $200,660 to $177,270—or by about 11.6%. In some areas, the drop-off was much more. Smart sellers were quick to lower their prices so they could get out early.
2. If you’re in a newer subdivision, there’s a risk that prices could fall much lower.
Many of your neighbors may already be “underwater” in that they owe more than their properties are now worth, and some of them may be facing foreclosure in the near future. A rash of foreclosures in your area could depress property values, since the homes are often resold at bargain prices.
3. Those statistics that are showing only modest declines in median sales prices may be misleading.
Many sellers (and builders) have been offering generous incentives and credits to sell their homes. So while the statistics are showing just modest drops in sales prices, the amounts sellers are actually netting have been dropping by quite a bit more.
Median sales prices can also give false readings if higher-end homes are selling better than starter homes. This seems to be the case in many markets. (For some evidence of this, click here, here, or here.)
When this happens, reported drops in median sales prices will tend to understate the extent of the downturn. Indeed, it's even possible for the median sales prices to rise in an area where all home prices are falling.
Here’s an extreme example that shows how this could happen: Suppose that there are just two kinds of properties in the town of Homesville: luxury homes and starter homes. In 2005, 200 luxury homes were sold for $800,000 each and 300 starter homes were sold for $400,000 each. In 2007, 150 luxury homes were sold for $600,000 each and 100 starter homes were sold for $300,000 each. Even though the prices of all homes in Homesville dropped by 25% between 2005 and 2007, the median sales price rose from $400,000 to $600,000.
4. It’s a great time to buy.
Your house may have dropped by 15%, but so has your replacement house. If you’re selling in order to trade up, this market may be working in your favor.
5. The amount you’re “bleeding” each month may be larger than you think.
Say you have a vacant $500,000 home with a $100,000 mortgage and monthly payments of $1,000 a month. You may think it’s only costing you $1,000 a month to wait for a buyer. Not so. You’re also missing out on an opportunity to earn interest on your $400,000 of equity. If the interest rate is 6%, you’re losing an additional $2,000 a month.
6. Those listing agents who keep telling you your price is too low may be giving you bad advice.
Some unethical real estate agents routinely tell FSBO sellers that their prices are too low in order to persuade them to sign a listing contract. This sales practice is known in the trade as “buying a listing.” A month or so after the contract is signed, these agents urge their clients to drop their prices.
7. The asking prices of neighboring properties may be giving you an inflated sense of your home’s worth.
In a falling market, many sellers have unrealistic expectations of what their homes are worth. Just because a neighbor with an identical model is asking $600,000 doesn’t mean that your house is worth $600,000.
Next topic: Buyers' agents
ŠLori Alden, 2008. All rights reserved.