“How much should we list the house for?” If I had a nickel for every time I have been asked that question…
If you read my “The only 4 things that matter when selling your home” blog post from a few months ago, one of the 4 things was price. Admittedly, price is everything when selling your home. The location, condition and marketing plan mean very little if the house isn’t priced appropriately. But wait, don’t confuse “appropriately” with less than other houses around or anything. Because appropriately can mean different things depending on the market.
When you go to set a price on your house, there are three options you can consider. Your Realtor should have lots of information that will help you determine which option makes the most sense for you and your situation.
Option 1: Price above fair market value
“Yep, let’s do that” I can hear you all saying. But let’s hold on a minute and see what that really means and what the pros and cons could be.
First, was does it mean. Simply put, it means that if the market is telling you the house will likely sell for instance, in the $195,000-205,000 range, that you would then set a price of say, $210,000 (or more). However, you have to determine if this is even an option for you by identifying a reason (or many) why your house holds more value. If you cannot reasonably explain why your house is definitively better than all of those other comparable houses, then this option isn’t the way to go. Additionally, let’s be clear that when we say it is an option to go above market value, we mean to do so realistically. If in the scenario above you want to do $225,000 that could be a problem.
The pros (or pro in this case), because I know that is what you want to see first…
1. You might just set a new value for your house and the neighborhood by finding that perfect buyer.
Taking the risk and getting more money for you is obviously nice. And sometimes worth the risk.
However, that is the only pro in this option.
The cons, which in this scenario are more abundant than the pros because this is a high risk, high reward option.
1. You might get a lot of showings from curious buyers wondering why yours costs more than the others in the neighborhood. But get no offers from those showings.
So, you will spend lots of time and effort getting ready for showings and getting nothing from it. Higher prices tend to bring out the “looky-loo” crowd who just want to see the most expensive house in the neighborhood.
The worst bi-product of this option is that you could watch the houses around you sell. Because you have made those the better value for the buyer.
2. Your house could take substantially longer to sell.
When the other houses in the neighborhood are selling, and yours isn’t, that is tough to stomach. And as your house sits, buyers see all of the other sales in the area and wonder what is wrong with your house? It may be nothing, but they don’t know that. So you must be able to be in for the long haul.
3. You might have to deal with low-ball offers.
If there is one thing you learn in real estate, it is that when a buyer thinks your house is overpriced, their reaction is to submit an even lower price than market value. It’s almost like they think the seller shouldn’t make a huge profit, but instead they should get a huge deal. It’s a strange concept, but it happens. So unless you are willing to sift through what could be some insulting offers and not take it personally (or blame your agent) then this probably isn’t for you.
4. The house still has to appraise for the purchase price for the buyer’s lender to approve the deal.
So, you found the perfect buyer willing to pay more for your house than the market indicates, that’s great. Problem could be that the appraiser for the lender doesn’t see the same value as everyone else does. And in most cases, what they say goes. Something to keep in mind.
Option 2: Price at fair market value
In the example from above, the market is telling you that your house needs to be priced between $195,000-$205,000 and you do exactly that. You find where in that range makes the most sense for your house, and price it accordingly.
1. You will get showings mostly from those serious buyers who know the market and are ready to buy now and more likely to make an offer.
Serious buyers are going to know about what houses in your neighborhood should go for. So their searches are set up appropriately to find those houses. Pricing your house right in that range tells the buyers that your house is going to be like the others they have maybe seen in the neighborhood, and maybe missed out on. They are not coming to see why the price is so high (or low, more on that later) but coming to see it as a potential purchase.
2. Less negotiation needed as the house is priced appropriately for the neighborhood.
When you price your house right the first time, negotiations become much easier, because when the price is in line with the rest of the neighborhood, there doesn’t need to be the back and forth of trying to prove why the price should be this or that. Both sides should see the value and negotiate based on that.
3. Your house will sell typically in the average amount of time for the neighborhood.
Serious buyers, plus easier negotiations typically means your house will sell at the same pace as the average for the neighborhood. Which could be significantly quicker than if the house is overpriced as above.
There is really on one con for this strategy (if you can call it a con):
1. You may not get any more money than list price.
Again, not necessarily a con as getting what you are asking is hard to spin as bad. But the allure of getting more than list price is something all sellers want, but is not usually expected going with this option.
Option 3: Price below fair market value
Following the examples from above, this would be were you see the $195,000-$205,000 valuation but decide that you want to price the house at $190,000 (or less). But why would anyone do that, you ask? Fair question.
1. Your house will likely sell much faster than the average for your neighborhood.
Remember those serious buyers who know the market value for your neighborhood and will go see the houses in that range? Well, think of your house as like being “on sale” to them. They will see it and want to immediately see it and if it measures up, they will buy. Making your time on the market very short.
2. A buyer frenzy could lead to a multiple offer situation driving up the price.
When lots of serious buyers see your house and the value it presents compared to the rest of the neighborhood, they are likely to want to buy it. When more than buyer thinks this, you as the seller win. Because there is a good chance the purchase will be above what you were asking. So, not only could you sell the house very fast due to high interest, but also get a price more in line with the market value of the neighborhood. If only all sales were that easy!
3. You will be in a better negotiating position when it comes to inspection repair items.
Don’t like the idea of having to go through a repair list from the buyer before they purchase it? Or simply don’t have the cash to make it all happen in time? Having the lower price is a good way to avoid having to do much (if anything) to your house before it sells. Your position is that the lower purchase price is in lieu of any repairs. Plus it lets the buyers do what they want to the house.
1. You could end up selling it at the list price, which is less than the market says you could get for the house.
Using this option needs to be done so with the understanding that this is possible and that if it does happen, it will be ok with you. Because sometimes, even in a multiple offer situation, that doesn’t guarantee those offers will be over list price. Perhaps your best offer is at list price.
So there you have it, the three options to consider when you want to sell your house. Again, the option you choose should be based on the information your Realtor provides showing how each looks for your specific situation and how much risk you are willing to take.