How to Price a Listing

Listing price is one of the most if not the most important thing a seller must consider when listing a property for sale. The listing price is very significant because it determines the tone for the transaction in the beginning, as in how attractive the property is to potential buyers and how quickly the home will enter escrow.

Historically speaking the vast majority of homes sold are sold at fair market value, which means that they are sold at the value that the property is worth in the current market, not sold at the amount that sellers would like it to sell for or the amount that buyers would like it to be.

Thinking objectively about the condition, location, style and the buyers’ viewpoint is an extremely effective approach sellers can take to help them reach a listing price that is in line with the current market conditions.

Unless there are extenuating circumstances such as the property being located in an undesirable, unusual or high-risk area, the narrower the gap between the asking price and estimated value of the property the sooner an offer will come in.

Key Points to Consider: 

Timeline

A property’s listing price compared to its competitors determines the urgency of the buyers’ in that area. A property that is listed at a realistic asking price or at an asking price that is in line with its competitor’s will usually result in a timely, lucrative sale where the property enters escrow generally within a few weeks of its original listing date. A property that is priced below its comparable competitors will more often than not sell at a quicker pace than its competitors, and enter escrow within the first week if not the first few days of hitting the market. Just as a property that is priced higher than its comparable competitors could take closer to a month if not more to sell.

The Buyers Perception

A  buyers’ evaluation of a listing will determine the value of any offer that buyer might make on that property. Buyers evaluate and determine the worth of properties by comparing them with recent sales of other properties that are in the same area, offer similar features, and are in a similar condition.

The buyer’s perception of the value of a seller’s home will not be altered by the cost of the seller’s next home, the seller’s need to pay off an existing mortgage, or the seller’s hope for a dollar-for-dollar return on any home improvements that the seller has made.

Sellers would be wise to remove emotion and pride from the pricing process and use logic. The buyers’ only consideration is price, condition, and how the property in question compares to other properties offered in that area. Buyers are interested in the property’s comparable worth, not what a seller might need or want to get out of the property in terms of cash value from the sale.

Dangers in Overpricing Then Reducing the Price

The harm in overpricing a listing then reducing the price after comes in the form of lost time or lost opportunity. If the listing price is out of sync with the market, the listing is likely to turn off a large group of potential buyers. In many cases buyers’ agents will skip showing the property to potentially qualified buyers altogether because at face value that property is out of their clients' price range.

The main issue sellers with overpriced properties face is that many buyers are constrained by their financing in that their financing is tied to the value of comparable home sales in the area. In other words if a home is priced at an unreasonably high price and it receives a full-priced offer, that price will be tested during the appraisal and lending process by the buyers’ lender. Meaning that the lender will verify the value of the overpriced property by comparing it to other in that area. If the lender cannot justify the listing price through comparable sales the lender will not lend on that property, or will lend less than the full asking price. This in many cases causes escrow to be cancelled and forces the sellers to start over again, in some instances with a smaller pool of available buyers than they had before.

Comparing the Competition in the Area

Analyzing information on market conditions such as the availability of mortgage funds or the neighborhood’s reputation and its characteristics can help sellers determine what effect current market conditions might have in their area and how to price the property accordingly.

Statistical data is also a great resource sellers can use to help them quantify the unique features that their home might offer. Data such as the value and the amount of comparable properties that have recently sold in the area, that are in a pending sale, that have been taken off of the market, that have been sitting on the market for some time, or that have been reduced in price can inform a seller about how much competition there is.

Aggregated data such as this is an extremely effectively tool to use to price a home because it establishes a solid correlation between the asking price and the fair market value. This is the same data that both real estate professionals and potential buyers use to aid them when evaluating a property’s worth.

REALTOR® like myself have access to all the data mentioned above and more through the Multiple Listing Service. One of the resources a REALTOR® can provide a seller is a Comparative Market Analysis. Through a CMA some of the data mentioned above is gathered then translating it into pricing benchmarks that sellers can use to help them make more educated and informed pricing decision.

Thank you for taking the time to visit my page. Feel free in reaching out with any questions. My contact information is located on the contact page found in the contact tab at the top. I look forward to helping you in any way that I can.