Sell it Fast: What’s My House Worth?
The single most important task in the selling of a house is pricing it—right at the market value, neither too low nor too high. This requires either your own careful study of comparable transactions in your neighborhood or the services of a professional appraiser, who will do the same thing for you. The owner must decide whether to price the house at full market value and try to pocket the commission savings, or to share these savings with the buyer, settling for a little less than the full asking price but more than he or she would get from an agent sale at asking price minus commission.
Buyers generally look for the lowest priced house in a given range. People who have between $220,000 and $230,000 to spend on a house are clearly not going to buy a $57,000 starter home. But say they find two houses in their price range, both of which meet their needs. One is priced at $222,000; the other at $227,000. Unless the more expensive house has some outstanding feature that merits spending an extra five grand, these buyers will likely purchase the $222,000 property. Keep this phenomenon in mind when you determine the price of your house. You can price your two bedroom bungalow for $90,000 if you want to, even though all the comparable places in the area are selling for $75,000. “Oh,” you think, “I’ll price my bungalow at $90,000. I can always come down to $75,000.” Think again. A buyer with only $75,000 to spend is going to offer to buy a bungalow comparable to yours marketed at $78,000. That buyer figures it will be easier to get those sellers to come down $3,000 than to get you to come down $15,000.
Why Sellers Overprice
Now that you know how important it is to price your house competitively, you may wonder why you see so many inflated price tags. Here are a few reasons:
- Ego. Sellers take pride in their houses, especially if they’ve spent time and money to remodel or decorate. To them, it just “feels” nicer than any other house on the block. Therefore, they price it higher.
- Those people down the street practically gave their house away. The desire to sell at a good price has led many homeowners to indulge in false logic. The faulty reasoning goes like this: “Sure, I know that all the other comparable houses in the neighborhood are going for $75,000, but I need to gross $90,000 on this sale so, therefore, my house must be worth $90,000. Everybody else is pricing way too low.” Get real, and start thinking, “Yeah, I need $90,000, but I’m only going to gross $75,000 for the sale. Now how can I make the other $15,000?”
- Market trends don’t affect me. Let’s call this the “charmed circle theory.” Nothing truly bad can ever happen to you because you’re, well, you. This isn’t the first time in your life (go on, admit it) you’ve believed that bad stuff can be going on all around you and it isn’t going to affect you one whit. You think you’re in a charmed circle of individuals who just don’t get roughed up by life the way the rest of us do. Trust us here, though. If marketing trends in your area indicate that house prices have dropped 10 percent over the last two years, it’s not just your neighbors who suffer when they put their place on the block. It’s you, too—no matter how lucky you think you are.
- Misinformation. An unethical real estate agent may have inflated the price of your house because he or she wants the listing. (You’re human. Who are you going to hire? An agent who says he can sell your house for $180,000 or an agent who says she can sell it for $200,000?) Or you spoke with the owners of a comparable property, one listed at $190,000, who said they got what they wanted for the sale of their home. Beware of taking such statements to heart. Maybe all those homeowners wanted was to unload their property quickly, and even though it listed for $190,000, they gladly accepted $173,000.
- You overestimate the appreciation. Houses increase in value when the economy booms in their areas. This is called appreciation. If you live in such a market, terrific. But many sellers have mistakenly thought that because houses in the posh end of town are appreciating at a rate of 5 percent a year, the price of their houses, on the working class side of the city, must be rising at the same rate. This is not necessarily true.
- Recapture the price of improvements. Sellers often mistakenly think that when it comes time to sell they can recapture the cost of all the improvements they’ve made to their house. Not true. With the exception of kitchen improvements, sellers rarely make back the full price of installing amenities, whether they be new roofs, new pools, or anything else you can think of. Pricing Your House to Sell “Okay, okay,” you think, “I’m not going to get greedy with this sale. I’ll price my house competitively. I just don’t know how.” Have no fear. There are many ways you can determine your home’s best sale price. They include: talking to real estate agents, hiring an appraiser, and heading off to the county courthouse yourself to see what comparable houses have sold for.
Overpricing Scares Buyers
These properties face other problems, too. Their agents are unenthusiastic about trying to sell them. Cooperating real estate agents and buyer’s brokers won’t bother showing these houses to buyers. Buyers aren’t stupid, and the ones who do tour the place will leave shaking their heads. Eventually, these properties just sit on the market. And the longer a house sits on the market, the harder it is to sell. Conversely, a competitive price draws buyers. Its agent will show the place with more enthusiasm, an enthusiasm that rubs off on both potential buyers and cooperating agents. It gets shown more often, and sells faster.