Question: what’s my home worth?
Answer: what do you want it to be?
One of the key values provided by a real estate agent is establishing what price to ask for your home. When the market gets hot so does the competition. Did you know that different agents will put a different price on the same home? Basically there are three ways to price a home and I present all three prices to my clients and let them choose the strategy that matches their motivation to sell.
- Price as high as possible
Look at comparable homes listed and sold (in real estate we call these “the comps”) and then list the home at a higher price. The logic is similar to buying a stock in an uptrend. If a stock is trading at $100 and you decide to buy at $110, just wait till it gets there. After all the housing inventory is low and you can easily price your $500,000 home for $550,000, just wait till it gets there. The flaw with this is that the $500K buyer is looking for competing listings in this price range. The $550K buyer knows inventory in that price range and sees the difference in lot size, upgrades and determines your home not worthy of an offer. The net result is that your over priced listing helps sell other homes that come on the market. When a home is on the market for a long time it’s called a “stale listing” and the impression it generates is that there is something wrong with the house.
However, this is a popular strategy by some agents. Who doesn’t want to hear that the agent will get you 50 or 100k over someone else’s price. What’s in it for the agent if my house doesn’t sell? Lots. The modus operandi of some agents is to be “sign agents”. They just want their sign on your lawn and what better way to beat the competition than overpricing a listing. These agents have teams that are hungry for leads. Signs on lawns and MLS generate these leads that never buy this house but become invaluable source of business for the agent’s team. If you’ve seen the same sign on a house month in and month out, you know what I mean.
- Price at market value
The second pricing strategy is to look at the sold and listed comparables in your neighbourhood. Then you want to make adjustments based on upgrades and relative strength of the market. This can be determined by the absorption rate of similar homes in your neighbourhood. If your agent doesn’t present any of this info, RUN.
The advantage of this pricing strategy is that you will attract the buyer looking only within this price range. Since this buyer is looking at other homes in the same price range, there is a good chance of your home being the exact fit. A well priced home generally sells within a reasonable period of time and within 1 to 2 percent of asking price. In this market if your home does not sell within 30 days consider absorption rate again and most likely your listing needs a price change.
- Price for multiple offers
The third pricing strategy is to establish market value and then price well below that number. Take our 500K house and let’s price it for $400,000. The buyer pool for the 500K price point now reaches into the 400K buyer pool. The frenzy will create multiple bids for this home. I have been to multiple offer presentations with as high as 17 and 25 offers on a house. The advantage of this strategy is that it guarantees a sale within a day or two and guaranteed over asking price. The agent looks like a rock star and the sellers are usually pretty happy with the process because they’ve never experienced anything like this before.
This (effective) strategy is usually deployed by the deep discounters and generally the laziest agents in the industry who have no clue how to establish real value of a home or how to read the market. Same is true when a house is sold within a day for over asking. Ever seen flyers in the mail from agents that say “Sold for over asking in 2 days! “. My advice – RUN and don’t look back. The reason I say this with such conviction is that the seller will never find out how much money was left on the table.
There is no right or wrong pricing strategy because in the end, it all depends on the seller’s motivation. During my listing presentations I present three prices for a home and go over the pros and cons of each pricing strategy.