How to set the list price for your home
March 27, 2014 | Gregory Maglione
When you are determining the list price for your home, there is more than the price your home will sell for to consider.
The terms of a contract could cost or save you thousands of dollars. The first part is the closing date. If you have to leave your home vacant for a while you will have to worry about carrying costs (taxes, gas, electric, sewer, etc.). Or, if you have to leave early, you might have to stay at a hotel or short-term rental. Either could cost you a lot of money. The second part is inspection issues; obtaining the permits and the certificate of occupancy can cost a lot of money and be a headache you don’t want. Pricing a home properly is important. You want as much control over the transaction as possible.
Key factors to set the list price for your home
You do not want to turn off the buyers. If you list your home way too high and it sits for a while, when you reduce the price buyers might still have some type of negative impression about your home. “Yes I saw that home a few months ago, there was something I just did not like about it.” What really happened was that the buyer liked your home, just not at that price. Now that particular buyer will be less likely to put in an offer even now that the price is reduced, and if they do it will likely be a lower offer than they would have come in at than if the home was first on the market at this new desirable price. Yes, if your home is sitting for a while and no one has bought it but other homes in the same price point have sold, your home is priced too high.
If you do list your home high and get an offer, what happens when the buyer applies for a mortgage and the appraiser cannot justify the high price? The deal will fall apart. Most buyers need a mortgage to buy a home. Contrary to popular belief, most banks do not want to make a bad investment. An appraiser is used to mitigate the bank’s risk. If the buyer stops paying the mortgage, the bank has to foreclose on the home. The bank does not want to lose money when they have to resell it. So if the appraisal comes in too low, the buyer will have to come up with more money for a down payment or the seller will have to reduce the price. It is usually the seller that has to yield, as most people don’t have the extra money or are not willing to pay more than the appraisal. People have a habit of not paying more for something than it is worth. Since the appraiser is considered an expert on home values, his or her word is what the bank and buyers put faith in. Now, can the appraiser make a mistake? Definitely! However, to hire an appraiser costs hundreds of dollars and to hire a second will cost hundreds more. There is also the type of mortgage to consider. If it’s a government loan (FHA or VA), the appraisal is on file for that property for months and a new one cannot be used. Have homes sold for more than the appraised value? Yes, but it just isn’t common.
If you price your home way too low, then you will usually have a bidding war. However, you run the risk that the buyers willing to pay the most may never see your listing, because they’ve restricted their search to a higher price point.
Pricing Just Right
You can price your home right on the money. This means you have listed the home a little bit above or below the final sale price. With this, you should have a smoother transaction with more control. You will have the ability to negotiate from a position of power. Things like inspection issues (yes, even in a newer home inspectors find problems) and closing date are more likely to go in your favor.
How to Find the Price
The industry standard for finding the value of your home is to find at least three similar properties that have sold in the last few months. The closer to the current date the better, anything over six months is considered old. Next, add and subtract for improvements and location. Then look at the market. Is it a buyers’ market (prices are coming down), a sellers’ market (prices are going up), or flat (prices are holding)? Make the proper adjustments for that.
Ultimately, you list your home for sale and it is marketed extensively. If you do not get an offer in a few months, reduce the asking price until it sells. If you are priced too low, you will get multiple offers and the buyers will offer over asking price. In this day of instant communication, everyone has access to so much information on the internet and so many people will see your home that it will end up selling close to its true value. There are some exceptions, but these are usually due to a lack of marketing or extenuating circumstances.