People who are selling their home usually are eager to maximize the return on it. Setting your listing price will involve analyzing several different factors, such as the strength of your local real estate market and how soon you need to complete the sale. Often, real estate agents recommend setting the price slightly below the market value of the home. This will galvanize interest in the home and can result in a bidding war that drives its price upward, sometimes above the market value. Also, it should result in an efficient sale that allows you to move forward and cut costs associated with maintaining the house while it remains on sale. Your agent will offer an opinion on the price that you should set, but you should evaluate the situation as well so that you can make your own decision.
One of the keys to setting your price is determining whether the market in your area favors buyers or sellers, or whether it is relatively balanced. (A balanced market likely will tilt in one direction or the other eventually, though.) A “hot market” is a market that favors sellers, while a “cold market” is a market that favors buyers. You should not place much weight on what you read about the national real estate market, since local variations are far more critical. You can discuss the nature of the market with your real estate agent, but you can also analyze it by reviewing how long homes in your area stay on the market, the average sale prices of these homes, and the ratio of homes on sale to homes that are bought each month.
Objectively Evaluating Your Home and Surroundings
If you have lived in your home for some time, you may have many positive memories associated with it that may not be relevant to its actual value. You also may not place much weight on certain minor problems with your home or your neighborhood that might bother a prospective buyer. To understand how a buyer might view your home, you should consider both the home and its surroundings. For example, if crime rates are going up in the area, this might reduce the home’s value. On the other hand, if trendy boutiques and restaurants are moving into your neighborhood, you might be able to sell your home for more than you expect. Sometimes home values can vary dramatically in a span of just a few blocks as the characters of neighborhoods change.
You can read more here about the importance of making repairs to your home so that it is in the best possible condition before presenting it to a buyer. If you are considering the additional step of “staging” your home, you can read more here about what that involves and how it may help increase your sale price. In addition to these issues, you may want to consider any special features of your home that separate it from others in the neighborhood. If your home is relatively modest compared to others in the neighborhood, it may be attractive to many people who want to live in this area without paying a huge price. By contrast, if your home is much more lavish than others around it, you may not be able to sell it for its full value because buyers who would appreciate these luxuries may not be looking to buy in this area.
Calculating Your Home’s Market Value
A real estate professional can prepare a comparable market analysis for you that describes the prices for which homes similar to yours have sold and how long it takes to sell them. The CMA also can explain the distinction between sale prices and listing prices in your area. You should keep this distinction in mind because sale prices may differ dramatically from listing prices. Another seller may have priced their home unrealistically or may have had certain reasons for wanting to sell their home as soon as possible.
You can ask real estate agents for their opinions of your home’s value, even if you do not retain an agent to help sell your home. Most agents will be willing to assist you with this step regardless of whether you hire them. (Some agents may inflate the value of your home, however, in the hope that this will convince you to hire them. You should be suspicious of a valuation that is much higher than the others.) Professional appraisers can provide appraisals for a fee as well, although they may not have the inside knowledge of comparable homes that real estate agents offer.
Setting the Listing Price
Finally, you will need to decide whether to set your home’s listing price below its market value, at its market value, or above its market value. As mentioned above, setting the price below market value can trigger more interest, leading to a bidding war that drives up the price, and it can get the process finished more efficiently. It can also be a useful way to convince buyers to take a risk on a home that needs some repairs. Setting the price too low, though, can result in offers that you would not accept and can drive away potential buyers who would prefer not to be part of a bidding war.
Setting the price at market value should result in appropriate offers and may result in a bidding war if the market favors sellers. However, this may not generate much interest if the market favors buyers. Setting the price above market value can be useful if you want to leave room to bargain downward, as long as the price is not far above market value. On the other hand, it may drive away some buyers who have a set price range, and it could make the prices of competing homes seem more reasonable. A high price could leave a home on the market for a long time, at which point prospective buyers may wonder what is wrong with it. This could result in drastically lowering the price just to get rid of the home.
You may need to adjust the price after the initial listing if the market changes in your area. Your real estate agent can advise you in this situation, and you can get a second opinion if you choose.