For today, we’re going to turn a blind eye to the notion of “Location, location, location” and focus our attentions on pricing. I received a call from an old friend last week and our conversation turned to my living situation. He did all the wiring in the house I built and was basically calling to just catch up. It should be noted that he currently has a house listed for sale in the same town where I live. As it came to light that I had sold my Jackson NH real estate in just two weeks, he (jokingly) called me a few nasty names and then asked how on earth that happened. The discussion turned, shortly after telling him what a great agent I had, to pricing.
Our two houses certainly have their differences. He has more land, I had a better view. He’s on a private road (Yes, it’s THAT house!), I was on a main road. His house was built in the 70′s, mine was built in 2010. His is a one story ranch with a full basement, mine was a 2 story cape with a drive-out basement. At the end of the day, you could argue that we are going to be attracting two very different buyers. But they also have their similarities. They are both houses, not condos. They both have small manageable lots and convenient garages. Their sizes were close enough to attract the same size buying family. So how do you compare them with their speed of going under contract? How did one sell in just two weeks while the other sits vacant and on the market for nearly a year? One of the answers to that question is price.
For argument’s sake, let’s assume that my house sold for $200,000 and his is listed at $150,000. We could argue that there are differences in the buyers in both of those ranges, but overall we can agree that there are buyers out there for both. Homes sell because of real or perceived value. Of course there is an emotional element in any purchase we make, but value, which comes down to condition and price, is a critical component with such a large and significant purchase like real estate.
I can’t over-emphasize the role of objectivity throughout this entire process. Of course my house was the nicest house in the whole world, but for everyone else, relying on the advice and opinion of real estate professionals is likely a good idea. Talk to builders, appraisers and even go see the other homes in your market that are in your price range. This will give you the confidence to price your house “right” and get it sold.
One way to approach the pricing of a home is through the rate of absorption (i.e. how much inventory is there and how fast it is moving). For example, if there are 100 homes on the market and only 10 are selling every month, for a seller to position their home to sell in the next 30 days, they need to be in the top 10 percent in terms of value. Is their home in the best condition for the best price? If not, it will fall into the 90 percent that will remain listed for sale until the listing expires or until the seller moves their price enough to motivate a buyer to bite.
Another effective way to price a home is by using price-per-square-foot data. Basically a home will fall into three categories which are, not surprisingly, based on condition and location. The top category is newly (or recently) built homes in desirable locations. The bottom category is homes that are in rough condition or in need of repairs and are in challenging or less desirable locations. The homes in the middle are the “C” students of the real estate market. They have the same amenities, condition and location as many of the other homes in the area. They are not asking for extra credit or headed to Harvard, but they are also not skipping school or dropping out.
As you can imagine, going back to that “objectivity” topic again, getting a seller to admit that their home is “average” can be challenging. One effective way is to go out and look at the competition. If you don’t feel comfortable doing that, just a review of plenty of interior photos of recently sold homes will be just as effective. You can review the images and start to choose the ones that most resemble your own house. The agent is then able to gather that data and generate an accurate listing price. The advantage here is you are now focused on SOLD prices instead of LIST prices.
The final method, for today, is to use the three different tiers of price-per-square-foot data and simply “choose your own adventure”. Gather the listings that have sold, those that are currently on the market and those that did not sell and group them respectively together. This paints a very clear picture of what range has sold, what the current competition is, as well as how much higher priced those that did not sell were listed. You are then able to see, and choose, where to price your home.
There are always exceptions to the rule. Was price the only reason my house sold in two weeks? No. There is always someone out there looking for what you are selling. This week, Edvard Munch’s “The Scream” painting sold for $120 million, setting a record for the most expensive artwork ever sold at auction. Clearly the perceived value was great enough to generate that type of bidding action. You certainly need to do some comparisons with regard to value, but in the end – the higher the value, the faster the sale.