There is perhaps no more important element in the process of selling your home than pricing it accurately. By accurate pricing, I mean selecting a price that gives you, the seller, the best chance at procuring the highest bid within the time frame that suits your schedule. Selecting a fair asking price is absolutely NOT a science but rather a combination of interpreting data and a "feel" for current market conditions. The stats provided in various market reports that state time on market and discount from asking price are almost always, in my opinion, a result of inaccurate pricing (remember that time on market numbers of reported from the most recent asking price and don’t take "real" time on market into consideration and the same goes with listing discount percentages). In addition, almost every FSBO ("for sale by owner") listing that I have come across is either priced too high or more frequently, too low, leaving money on the table.
If you are preparing to sell your home, here are some ways that may help you in selecting a fair market price:
- Don’t believe the hype-We all hear what we want to hear and in the case of most sellers, they hear only the positive spin on market conditions. Keep in mind that most of the people you know aren’t as likely to share with you that it took them 6 months to sell but they are much more likely to tell you about how they and everyone they know had bidding wars on their property. Also BEWARE of real estate agents who tell you what you want to hear. There are many out there who desperately need an exclusive listing even if it is just to procure buyers for other properties. They often get so excited to obtain the exclusive that their judgment becomes cloudy. Or they just lie.
- Compare Apples to Apples-I can’t tell you how many sellers have said to me "but my neighbor sold his/her apartment for $X" when the neighbor’s apartment is dramatically different in one or more ways (ex. better views, renovated, completely different layout, higher floor, better or worse building). I also often hear, "a 3BR across the street just sold for $X." It’s imperative than when analyzing comparable apartments, you stick with those most similar to yours and make proper adjustments for various amenities and differences if necessary. Compare prewar to prewar, doorman buildings to doorman buildings, and location should be in as close proximity to your home as possible. It may be a good idea to spend a couple of weeks with a friend attending open houses for similar properties but remember that the asking price of active property has little to do with what homes are actually selling for.
- Objectivity is difficult but necessary-I know it’s difficult for a seller to remove her/himself from the attachment they have to their home. But you must do your best here. Don’t inflate your price based on your emotional attachment to the built-in ironing board or the bidet that you think is so nifty. I once had a seller who installed a urinal in his bathroom and really believed it would increase the value of his property. If you are going to hire a real estate agent, make sure you are comfortable with their honesty and don’t fall for the person who "yeses" you to death and tells you how wonderful that mirrored ceiling and disco ball in the bedroom are. It may be beneficial to sit down with a friend (a really good friend) and make a list of all the things that you think are selling points and have them tell you which are a stretch.
- Finally…Don’t price too high or too low-Once you have selected the correct sold properties to compare to yours, made your list of selling points and had a friend edit them, and perhaps met with a few real estate agents to get their professional opinions, select an asking price that "feels" right. A tall order indeed because you must remove your emotions from the pricing process. If you have determined that other homes like yours are selling in the $800 to $900 per square foot range, then you need to objectively determine where your property falls within that spectrum. Most of us would need help from that friend or real estate pro for this.
Jonathan Miller addresses some reasons for valuation inaccuracy (via Matrix):
- Blinded by one-sided information – the appraiser or broker relies on information provided by the property owner, who is already biased towards their property being worth more. Appraisers who only use comps provided by the broker in the sale are not providing an independent valuation for the lender, who hires them to access the collateral.
- Lack of information – limited current data, or access to relevant data like listings and contracts in addition to closed sales make the results much more inconsistent.
- Little understanding of amenity differences – For example, understanding locational differences such as neighborhoods, subdivisions, cul-de-sacs, busy streets, school districts, etc.
- Using out of date rules-of-thumb – There are some who use rules or experience gathered long ago and do not continue to modify their experience in understanding variances in the contributory value of amenities.
- Inability to read buyer and seller’s minds – I’ve been working on this by taking vitamins but it hasn’t worked. The message that buyers and sellers give a broker or an appraiser can be very different than what actually motivated them to agree to the sales price.
- Lack of experience – Raw data doesn’t tell the whole story. Someone who is immersed in a market will stumble on information that less experienced “experts” would have. Data is data but interpretation separates the hacks from the professionals. Automated valuation models (AVMs) [Soapbox] are data crunching programs spit out values for a property for lenders and on-line services such as Zillow provide on-line values for consumers. They may or may not take you to something close to a reasonably accurate value. If they do, then it’s more likely to be a coincidence and that’s not good enough for the user IMHO. However, both services provide a “number” and the assumption that if a valuation is in writing, then it must be accurate (read the National Enquirer lately?) Sellsius makes a strong case for using your senses in valuation in their post I See, said the Blind Man to the Deaf Lady [Sellsius]. However, I feel strongly that the post should be called “I see said the blind man as he picked up his hammer and saw”, but that’s another topic.
Jonathan makes some great points and seemingly he and I are on the same page. Whether a buyer, seller, real estate agent, appraiser, or other real estate industry expert, there is no denying that pricing is an art that utilizes a bit of science.