I was recently discussing home pricing, and how to value a home. Pricing a home is an art, especially where homes are not built in one fell sweep by a developer, but rather over a hundred years with architectural styles from Tudor to Cape Code, from adobe to flat roofed modern. The truth is, only the market knows the value of your home. The good news? The market is keen to tell you.
Overpricing vs Underpricing
If your home’s value will be revealed by the market, is it better to start with a high valuation, or a lower list price? And if the home is overpriced, what’s the big discount that buyers are asking for when the home is more than a week or two on the market?
Let’s unpack this. Say there is a home that is worth approximately a million dollars. You’ll know if the home was worth more than it was listed for if it sells in five days*, and worth less if it sits for more than 20 days on the market. *(As a rule, every transaction is different!)
Bidding wars sound exciting, but in reality they don’t happen without a plethora of buyers who are prepared to buy homes and are competing for them. Your neighborhood and home have to be of the nature that buyers can’t find in order to justify the risk of underpricing pay off. If you underprice the home and you have a full price offer right out of the gate, you’ll have no way of knowing what you left on the table if you’d had more time to garner more views. If you ask a bit much for your home, you can read that as a market that is telling you something, but that you can adjust to more easily than if it is underpriced.
Sales Price Gap
A rule of thumb is to ask your Realtor what the average “gap” is. The gap, that is, between original listing price, and actual sales price. In Santa Barbara county it’s typically about 97%, but back in 2005 it was close to 105% and it was in the low nineties in 2012!
If the gap is 3%, assume a good offer (if you’re well priced) is going to be about 3% less than your list. If you have listed more than 10% too high, buyers won’t be looking at the home that might be right for them. In other countries making offers, even offers with no suggested list price, is not uncommon, but here we just don’t do it much.
If you’ve been on the market and aren’t getting buyers, a general rule of thumb, buyers will be looking for a value play. One strategy is to drop the price 5% every three to four weeks, but that depends on your market, your motivation and the length of time you have to sell your home. Once you have the market’s feedback, you might want to drop it as low as you can to garner attention and reduce the length of time you have to sit on your unsold home.
If you want more tips on Home Selling, email me for your free guide: 59 Steps to Sell your Home.