In the process of selling a home, the single most important item to address is pricing. Pricing a home has several factors which must be addressed in order for the outcome to result in successfully attracting a buyer. This is especially true due to the fact that most local markets are experiencing what is termed a “buyer’s market.”
A “buyer’s market” is, in simple terms, one in which there are more homes for sale than there are buyers for those homes; basically a glut on the market. This can occur when the banking industry experiences a record number of homes they have in foreclosure. In this case, these foreclosed homes have saturated the real estate market, increasing inventory beyond the market. Another factor may be that people who are currently renting are hesitant to commit to a long term mortgage, even at lower interest rates, because of job instability.
What this means to someone who is attempting to sell a home is that the asking price must fall within the range of what a buyer will pay for a home in a specific location. This “magic” price is determined by the following statistical facts:
- Comparison of asking price of other, similar and non-similar, homes that are in the vicinity of the subject home
- Comparison of actual sold price of other similar and non-similar, homes in the vicinity of the subject home that successfully closed escrow
- How many homes are currently on the market that are comparable to the subject home
- How long other homes in the vicinity of the subject property have been on the market
- Location of the subject home
- Condition of the home
A seller’s true competition is the other homes on the market. By looking at the asking price of other homes, it can be determined what the current competition is. Upon analyzing competition, whenever possible it is best to come in slightly under asking prices of the other homes if at all possible. This places the seller’s home in the primary position when buyers are making their lists of the best priced homes. It is a mistaken belief that buyers and sellers are in an adversarial position. In actuality, a buyer and a seller want the same thing.
The actual sold price of other homes provides guidance as to how much the market will bear for the property. It is best to look at homes that are the same style, similar amenities, and within the same area as the subject home, but not absolutely necessary, especially in today’s market. Buyers are looking for the best deal, not necessarily a particular style. The actual sold data is the strongest indicator as to how to price a home to sell.
There are a couple of helpful pointers when reviewing how long other homes have been on the market: those that are currently active on the market, those that have received a contract on them but have not closed escrow, and those that have closed escrow. This number, termed “days on market” or “DOM,” provide information on an estimated time it will take to sell the home. This figure needs to be analyzed with the asking price history.
The location and condition of a home are generally the easiest to consider. If the home is located in a desirable area, but is in poor condition, or vice-versa, it will have an impact on the price.
In essence, you need to tie the contributing facts together, starting with the hopeful sale price based on other listings, then what they are actually selling for, and the volume of houses in your price range, and neighborhood. Then, throw in the desirability and condition of your home, and your price will finally be set. This takes some patience and courage, but the final result will be more showings which means more potential for a successful sale.