Six Rules for Pricing a House Properly
Here is a theoretical example for you:
Seller lists home with Realtor A. Despite reviewing the competitive market analysis (CMA) produced by Realtor A, Seller insists on a high listing price.
The home sits on the market for a couple days. A couple weeks. A couple months…
Maybe there was a showing or two along the way, but no offers. Clearly, the home is priced such that buyers are not interested in purchasing it.
Seller interprets the lack of offers as a sign that Realtor A is “not doing their job”. Seller cancels the listing with Realtor A and moves on to Realtor B.
Having seen the home sit on the market and garner little interest, Seller decides to reduce the asking price as a means to entice an offer. Unsurprisingly, the home, with it’s now-reasonable price tag, sells quickly.
Realtor B gets the commission and the credit for pricing the home accurately. Realtor A gets nothing.
[Editor’s note: Let’s arbitrarily call this situation “Realtor A’s Worst Nightmare”]
This example is not actually theoretical, of course. It happens time and again. In any city, in any state. This example is also not meant to point a finger at sellers, because after all, this is their home and they understandably want the most money possible for it.
The goal here is to learn the lessons presented to us and apply them to our future listings.
Lessons for the seller:
Define your priorities. Is it your priority to sell the house quickly? Or is it your priority to test the market and see if you can solicit your dream offer? Communicate this to your Realtor. This dictates the sales approach your Realtor will employ.
Listen to your Realtor. We are trained professionals whose job and FIDUCIARY DUTY (look it up!) it is to be our client’s trusted advisor throughout the home selling process. We typically tour all new properties that hit the market. We know the inventory and have an understanding of the competition your home faces.
Be objective. This is very much NOT human nature when dealing with our own possessions. Obviously we prefer our belongings to someone else’s. That’s why we own what we do. But if the seller can compare their home to the competition from an unbiased viewpoint, a pricing strategy becomes much more clear.
Lessons for the Realtor:
Immerse yourself in reality. Do the research. Produce a CMA. Combine that with your understanding of the current real estate climate to price the home such that it garners positive reviews from other agents.
Listen to your seller. If their priority is to sell the home quickly, price aggressively. If their priority is to get top dollar, know that you could be in for a long ride while waiting for the perfect offer to arrive. Be patient.
Know what you can control, accept the rest. The seller is the customer. They ultimately dictate the process. This is their home, not yours. Be respectful and honest, and it will come back to you.
There is no better form of advertising than a fair asking price (SEO be damned!).
When agents finish touring a home that is properly priced, they will immediately contact potential buyers. They’ll call/email/text/tweet/Instagram/telegram all of their contacts. A tidal wave of energy will spread throughout the real estate community, all focused on how great a value your home is.
Overpriced houses tend to attract lowball offers. Fairly priced houses tend to attract offers at, or above, asking price. The market typically self-corrects in that manner, which is important to remember when pricing a house.
Properly price your house. Agents will be motivated to spread the word to their clients, the clients will be excited to come to the open house, and the offers will be plentiful.
Congratulations, you’re on your way to escrow!