Probably the most important decision you will make. How do I price my home for sale?
Lets start with the end game. You want to price your home in a manner that maximises the amount you receive. A truism, yes, but I don't know of anyone that is selling real estate that wants less than the maximum. If they do let me know, I'm a buyer!
Ultimately, they say, the 'market' will determine the value of your home.
Who is the market? I have yet to meet him, 'the market' - probably a great guy, although I suspect he tells really, really boring stories. The economic definition is willing buyer, willing seller, with the benefit of all relevant information. In other words, everything is equal. Don't we wish that the real world was as simple as the economists want to make it! Pretty artifical really. The more practical definition is a person in the market at the current point of time, willing to pay a price acceptable to the seller, in light of the circumstances they (the seller) currently face.
So, given that, what price?
Shoot me now. Often answer to this are questions and explanantions used by agents to 'encourage' a reduction in price, but nonetheless:
- Are you on the market or in the market?
The question really here is are you priced to attract buyers, or are you priced above the going rate so all you are doing is helping those that have priced their property correctly sell their homes. Read the sentence again, carefully. The assertion is that if you are priced above the market you merely act as a comparison that illustrates other homes are better priced. The real estate-speak you may hear - "are you there to sell your house, or are you just there to help those that are priced right sell theirs?".
- Are you chasing the market down?
Buyers work in cycles. The cycle being the date they come into the market looking for a property to the date they settle on their ideal purchase. In New Zealand it tends to be a 4-6 week cycle. A confession here - I have yet to find the research that supports this assertion. It is a common theme of traditional real estate training. I have seen it, heard it, and I have the powerpoint graphs. If you have access to the research let me know!
But if we allow that the buyer cycle assumption is correct, what it means is if you have priced above the market, particularly in todays environment you can tend to end up chasing the price down. This doesn't mean the market is declining - what it means is that the longer a property is on the market, the more issues buyers tend to associate or assume with the property. In other words, they ask themselves the question 'why has't this property sold?', the unasked question being 'what's wrong with it'. And today the buyer has choice - if in doubt move on.
Scary if you get your pricing wrong.
So what are your options to gather relevant information?
- Get a real estate appraisal from a licensed real estate agent. This should contain sales of similar properties in your area and be reflective of current market conditions. You will normally get this for free - although you may get a few follow up calls looking for a sales listing! The criticism of agency appraisals is of course objectivity - you have an individual competing for the opportunity to sell your home. As much as the new legal requirements are designed to remove this bias, you have to ask, how much does this influence the result?
- Get a valuation from registered valuer. This is independent of any real estate agency and is based on sales in your area. It will cost you money - but what vaue independence and objectivity?
- Of course there is your own analysis. Attend local open homes, look online to see what is for sale, compare properties. The key is obviously objectivity - can you do that?
The message of this post is to be analytical, be objective, take advice, and look at all the available information. At the end of the day make a decision based on that data.
And, we need to finish of course, with the things that should not be factors in determining your price:
- What you need to purchase your new home
- What you have spent on the property
- What you paid for the property
- What your brother-in-law says the property is worth
- What the drinking buddy down the road says he sold his home for
There is probably a few you can add to this too.....