Value is in the eye of the beholder. Setting the list price for the sale of your home is critical, and early mistakes can set in motion a course of undesirable outcomes. This key component of selling a home is the one that is the most pondered and discussed by sellers to agents everywhere.
List Price vs. Sale Price
Anyone can put any price on any item and set it up for sale. I could list my lucky Red Wings jersey for sale at a price of $5000 because that is the only way I would every let it go. To me, the jersey is special and sentimental and it's worth every penny. Finding a buyer anywhere on Earth that would agree to pay me $5000 for a mass produced, old, used jersey is likely not going to happen. Lucky for me, I get to keep it forever. When you list your home for sale, despite your feelings of perceived value and how much you want to get, you have to figure out what a reasonable buyer will be willing to pay...ideally, several buyers. You must also consider whether or not the property will appraise anywhere near that set price, but I'll get into appraisals in the next article.
The seller sets the list price. The sale price is usually determined by the buyer, and agreed upon by the seller. If the goal is to get the house sold, which it is, your starting list price needs to attract buyers. Take into consideration that this property has been your home, your memories have been created in that home, and your feelings about the house may cause you to have an inflated perception of value, just like I do for my jersey. Sellers need to take a realistic look at the hard data provided by their agent regarding the current similar homes listed, and those that have sold within 180 days.
Many sellers want to start out with a high price to give them "room to negotiate." It sounds like a good idea, but it can cause a domino effect leading directly to a less than desirable outcome. The buyers decide how much they are willing to pay. Every buyer in each price range is typically viewing all available comparable homes. When your home is overpriced, it will be lumped into a group of homes with bigger/better features, amenities, etc. It will look like the worst one amongst its "peers," which doesn't do much to attract a solid offer. The house will sit and sit, sadly being perceived as the worst house on the market. After 21 days without an offer, you will be faced with making a price reduction. Bumping the price down may work to pique the interest of the previous buyers and to attract different buyers, but they will all know that the home has been sitting and assume there must be something wrong with it. At best, you can look forward to a low ball, disappointing offer. Pricing high will brand your house as the worst, which puts you in a very weak position for negotiating.
Setting an appropriate price will attract a lot of buyers and typically a decent offer. The other homes in the price range should be very similar in terms of features, amenities, location, and condition. At that point, it comes down to the buyer's personal preference. They will pick the house because they like it and they want it. They will likely be willing to pay the asking price, or close to it, and the transaction will progress with minimal snags.
Another underutilized strategy is to price the home just under the market value. First off, your agent will need to vigorously market and advertise the property. This will single out your home as the best in that price range, create a frenzy of showings and typically multiple offers. Each of the buyers will be well aware that they are competing against other offers and will write offers over the asking price in an effort to "win" the home. Ultimately, the outcome from this type of pricing strategy is very positive in the favor of the seller, and the buyer is thrilled that they were able to secure the best home on the market. Create a pricing strategy and commit.
Read more about the next step in my Seller Series #4- Showings, Appraisal and Inspection.