When you’re ready to sell, the most important factor after deciding which broker to hire is the listing price, but maybe not for the reasons you may think.
The listing price of your property does not determine the selling price. The market does that. Instead, the listing price gives the buyer a foundation from which to start the negotiations and determines which subset of buyers even see your property.
If you and your neighbor have identical homes, but you list yours for $100,000 higher than theirs, the people who find your listing are presumably to be different than the people who find your neighbor’s, and you likely won’t see any of the same interested parties despite the homes being the exact same.
Furthermore, between the two homes, which one do you think is going to get more offers? Probably your neighbor’s. Plus, if people get into a bidding war over your neighbor’s home, he’s going to sell it faster and for a higher price as yours sits on the market and watches it happen.
How do real estate brokers determine an appropriate listing price?
Real estate brokers will most commonly look at recent sales of comparable properties to estimate what the market value of a given property may be. However, it is important to understand that every property is unique and there is no such thing as an exact comparable.
Even homes with identical floor plans in the same neighborhood have differences. Perhaps the decor of one home is more appealing, or one home has better views, or one occupant smoked…etc.
Therefore, you should never jump to the conclusion to list your property for the same price as your neighbor. If your neighbor’s property is still for sale, that means it hasn’t sold… If your initial listing price is too far off the mark it can be difficult to recover, and that’s probably what’s happening to your neighbor’s house sitting on the market.
How do I know what price is right?
When you’re selling your property, you obviously want the most money possible. At first glance, you might think that listing your property above market value will yield the highest sales price, but this logic is incorrect. More often than not, an “accurate” listing price will net more money for a seller than a “higher” one.
Depending on the amount of activity your property is getting while it’s for sale, you can make a few assumptions and adjustments regarding the price.
Little or No Activity – Your price is not in the right ballpark.
An accurate listing price is determined first, by the amount of activity it generates assuming adequate marketing is in place. Every new listing should get some activity as soon as it hits the market. Reading and understanding that initial activity is critical. If early activity is very low or non-existent, that is a huge indicator of the price being price high. Ignoring these indicators and keeping the price the same will almost always result in your property sitting on the market for a long time or eventually having to sell for far below market value.
Steady Activity But No Offers – You’re throwing pitches but not quite in the strike zone.
If activity is steady but no offers are forthcoming, this means your price is likely on the higher end of your target market’s budget. People are finding your property, looking at your property, but are either making an offer on a comparable property that’s priced a little bit lower...or waiting for a price reduction that's closer to what they want to offer.
Creating a sense of buyer urgency is the key to throwing a strike.
When I first meet with my clients, I make it a point to discuss the importance of pricing in the marketing strategy. Most nod their heads in understanding but meet a price reduction with resistance when it goes from an idea to a reality.
When sellers spend too much time calculating everything they could purchase if their property sells for the initial listing price, the numbers blind them from the reality that their property might never sell unless they lower the price. Then, when sellers refuse to lower the price, it forces their broker to reimagine the entire marketing strategy to try to convince buyers that the price is right. Don’t do that!
If your broker suggests a price reduction for your property, it’s probably because the current price is too high to sell. Trust your broker to guide you in the right direction about how to price your listing. Keep in mind that their commission is a percentage of the selling price so they want it to sell for the highest possible price too, just make sure that the highest possible price is reasonable for your target market.
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