Setting Your Home Selling Price
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Home Selling Price vs. Market Value
Naturally, you want to get top dollar for your home. But, you don’t want to scare off potential home buyers with a price that’s set too high. Setting an artificially high price may cause your property to languish on the market for months. Reducing your asking price later on may lead buyers to wonder if there is something wrong with your home.
Factors to consider in setting your home selling price:
- Your location
- Economic conditions
- Supply and demand in the local housing market
- Seasonal influences
- Local schools
- Average home sales prices in the neighborhood
- Your home's extras -- pool, fireplace, central air, etc.
Selling Price Considerations
In setting the list price for your home, you should be aware of a buyer’s frame of mind. If you set the price too high, your house won’t be picked for viewing, even though it may be much nicer than other homes on the street. Compared to other houses for sale, your home simply looks too expensive to be considered. On the other hand, if you price too low, your house will sell promptly, but you may make less on the sale than if you had set a higher price and waited for a buyer who was willing to pay it.
Use Comparable Home Sales Prices as a Guide
No matter what the condition of your home, buyers will compare its price with everything else in the local market. Your best guide is a record of what the home buying public has been willing to pay in the past few months for property in your neighborhood like yours. Your professional realtor can provide historical home sales price data for those comparable home sales, and analyze them for a suggested listing price. After all the professional input, however, the final decision about how much to ask is always yours.
The list of comparable home sales provided by your realtor, along with data about other houses in your neighborhood presently on the market, is used for a "Comparative Market Analysis (CMA)." To help in estimating a possible sales price for your house, the analysis will also include data on nearby houses that failed to sell in the past few months, along with their list prices.
Comparative Market Analysis (CMA) vs. Appraisal
This CMA differs from a formal appraisal in several ways. One major difference is that an appraisal will be based only on past sales. In addition, an appraisal is done for a fee while the CMA is provided by your realtor and may include properties currently listed for sale and those currently pending sale. In a normal home sale, a CMA is probably enough to let you set a proper price.
Benefits of a Professional Appraisal
A formal written appraisal (which may cost a few hundred dollars) can be useful in setting your price if you have unique property, if there hasn't been much activity in your area recently, if co-owners disagree about price, or if there is any other circumstance that makes it difficult to put a value on your home. If you do order a market value appraisal, make sure the appraiser understands that you don't need an elaborate, or full narrative report.
Calculate the price per square foot
The average price per square foot for homes in your neighborhood shouldn't be the sole determinant of the asking price for your home, but it can be a useful starting point. Keep in mind that various methodologies can be used to calculate square footage.
Consider Market Conditions
Are home prices in your area trending upwards or downwards? How quickly are home selling? Will your home be on the market during cyclical home-buying seasons (such as spring) or the dead of winter? Are interest rates attractive? Is the economy hot or cold? Will you be selling in a buyer's market or a seller's market? Is the local job market strong or are employees fearful of staff reductions?
A Comparative Market Analysis (CMA) often includes Days on the Market (DOM) for each comparable house sold. When real estate is booming and prices are rising, houses may sell in a few days. When the market slows down, however, average DOM can run into many months. One of the important tasks that a realtor performs is identifying whether your area is currently a buyer's or seller's market. Properly identifying this key market condition is very important in determining how aggressive your listing price should be.
Offering Sales Incentives
Sometimes cash incentives are as effective as lowering the price, especially in the lower price range where buyers may be "cash poor." You may offer to pay some or all of a buyer's closing costs and discount points required by the buyer's lending institution. If you haven't had much traffic through your house and you’re in a hurry to sell, you may want to add the offer of a bonus to the selling broker, in addition to their commission.
Some buyers have needs that go beyond the bottom line. If you're willing to close escrow quickly, you'll attract buyers who want to move in right away. If you can offer seller-financing, your home will appeal to buyers who need to stretch their financial resources. A lease-option can help first-timers who need downpayment assistance. The more creative and flexible you can be in meeting the buyer's needs, the more success you'll have in pricing your home to sell.
Estimating Net Proceeds from Your Sale
Once you’ve have an estimate of market value of your home, you can get a rough idea of how much cash you might net once the sale is completed. This can be essential information as you start looking for another home to buy.
Costs to Deduct from Your Projected Sale Price:
- Payoff figure on your present home mortgagge loan(s)
- Broker's commission
- Any prepayment penalty on your mortgage
- Attorney's fees, if any
- Unpaid property taxes
- In addition, your realtor can tell you whether local customs or rules dictate that the buyer or seller to pay for the following items:
- Title insurance premium
- Transfer taxes
- Survey fees
- Inspections and repairs for termites and the like
- Recording fees
- Homeowner Association transfer fees and document preparation
- Home protection plan
- Natural hazard disclosure report
- No matter what local practice dictates, you and your eventual buyer may agree on any arrangement that suits you. Your realtor will assist you in estimating what those final closing costs will be.
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