How to Determine Listing Price for a House/Property
1. How to Determine Listing Price for a House
Determining your listing price or your asking price, is an important part of making sure that you attract the right buyer to make an offer. Getting your listing price right from the start will ensure you have a faster sale, and likely the best sales price that the market will bear.
The basis for all home pricing strategies is to understand the estimated market value of your home by studying the recent comparable sales in your area. Recent comparable sales will set the tone for what buyers are willing to paying for properties in the current market. From there, you’ll be able to analyse your property comparatively and also take into any considerations with regards to market conditions rising or falling to determine a listing price at market value, above market value, or below market value depending on your timeline and goals.
2. The most common home pricing strategies in the real estate market
a. Pricing Strategy #1: Price Below Market Value
Whether or not you choose to exercise this strategy will also depend largely on the market. Let’s break down a hot market vs a cooling market and how this strategy applies to each.
- In a Hot Market – aim at Multiple Offer Scenario
If you’re in a hot market, you’re likely experiencing a market with low supply and high demand; thus, prices may increase from sale to sale due to multiple offers being received. As supply is low, buyers may be less picky – especially if they are in need of a home and willing to compromise on their wants vs. needs.
Furthermore, they understand a “hot” commodity is likely worth at least listing price. Most buyers tend to put more weight on past sales when it comes to estimating the selling price of your home. In this situation, listing below market value is less of a risk as buyer’s mentality is already set that they should expect to pay above listing price in the event that a multiple offer scenario occurs.
However, keep in mind that this strategy doesn’t always work (even in a hot market), and can backfire really quickly. As a seller using this strategy in a hot market, you’ll need to accept that it is possible that no one will show up on offer night. Even if you do receive multiple offers you also have to prepare yourself for the chance that they might not be as high as you expected.
Ultimately, if you are going with this strategy, all I can say is: Don’t price TOO low. It is extremely risky for the seller as it is uncommon for a buyer to offer tens or hundreds of thousands of dollars above the listing price, regardless of the number of offers you received. I advise that you only use this strategy within a reasonable price window.
- In a Neutral Market – aim at Hopes of Multiple Offers
If you are in a neutral market then you are experiencing similar supply and demand. As there are other options on the market, this strategy is typically received best if your home is clearly one that offers the best value overall.
The most desirable homes are typically in a great neighbourhood or school district, renovated, unique (in a good way), or with income-generating suites, and this is typically where we see the most success with this strategy because home buyers view the home’s features as particularly valuable and are willing to pay more.
The risk of pricing below market value in a neutral market is that because there are other options, you may end up on offer day with no offers or only 1 offer in hand. If that’s the case, then you may be leaving money on the table as most buyers are only willing to pay over asking price in the first 1 to 2 weeks or if they’re in a multiple offer scenario.
- In a Cooling Market – aim at staying ahead of the Market
If you’re in a changing market (downturn) or a neutral market, then this strategy will result in the quickest sale; which could, in the long run, actually turn out to be the best profit for you. Because pricing below the last sale typically results in the fastest sale, in a down market where each property is selling for less than the last, being the first to sell will in turn result in more profit. Alternatively, if you price too high to begin with and the market continues to fall, when you adjust your price down the road your home will be worth even less than if you just used this strategy to begin with.
In a market like this, if you’re not ahead of the curve you’ll always be chasing it. The faster that you adjust to the changing market, the more likely you will be to generate an offer and not have to deal with your home sitting stale on the market.
b. Pricing Strategy #2: Price at Market Value
If done correctly and market value properly estimated by your realtor, this type of home pricing strategy is a safe option for any market to get a good price for your home and have it sold quickly. When it comes to determining the market value of your home, your realtor will look at:
- Location of your home
- Condition of the property (maintenance)
- Style & Design (structural & cosmetic)
- Additional plusses and minuses
- What comparable homes have sold for in the last 30-90 days
- What comparable homes are currently listed for
- What homes haven’t sold in your area (expired, withdrawn)
- The current market conditions (supply and demand)
In a best case scenario, if you price at market value and obtain a multiple offer, the buyers may still be open to pushing above the listing price, which would actually result in an above market sale price and likely a sales price record. For this to work properly, it is imperative that the Seller gets guidance from a local agent with a strong marketing plan that will increase exposure to the maximum amount of buyers.
Due to the fact that you have set a fair price based on sales, even if you only receive 1 offer the buyer should be able to obtain the listing price. (given that your realtor is a strong negotiator) Many home sellers using this strategy will take offers on a first come first serve basis, but depending on the market, setting an offer presentation date may be beneficial for you.
Remember: Because market value is largely determined by recent sales, keep in mind that the price of your home is a moving target. The value can change depending on updated sales, changing market conditions, or who your target Buyer is.
c. Pricing Strategy #3: Price Above Market Value
We see homes priced above market value all of the time. The reason for it varies, but whether it is an overly ambitious seller or an uneducated realtor, this is the strategy that will hurt homeowners the most in the long run. There are a number of things to keep in mind before you decide to go with this strategy:
- The majority of buyers don’t like to negotiate:
If they think the spread is too large from your listing price and their ceiling price, they won’t even bother booking a showing. Most buyers are more likely to walk away from a home than put in a low-ball offer and risk insulting the sellers. The majority of people are not natural born negotiators, and the high price is going to alienate a number of buyers.
- You’re limiting your home’s exposure:
If you’re pricing high to leave space for negotiation, then you risk a home not even coming up on a buyer’s radar. Remember, the exposure of your home directly relates to the price you receive – so make sure your home is exposed properly by pricing it correctly right off the bat.
- Buyers are usually only interested in a property in the first couple of weeks:
After the 14-21 day listing period of a home, the property tends to go stale and buyers will disregard it. New listings come up, yours gets overlooked, and there is often a stigma that something is wrong with a house that hasn’t sold quickly. There’s ample evidence out there that proves that properties that sit on the market because they are priced too high usually end up getting a lower price than they would have, had they priced at market value in the beginning.
- Expect a price reduction and/or low ball offers:
If you’ve overpriced a home and it’s been on the market for longer than the average days on market for similar homes in your area, you’ve almost completely removed your chances at multiple offers. Most buyers will think that if they do put an offer in, that they can negotiate the price and low ball you. If you don’t receive any offers after the average days on market for comparable homes, then you should consider repositioning your home in the market.
3. How to Price Your Home to Sell for Top Dollar
Listing price is a strategy, and there is a lot of analysis that is required when it comes to determining market value and determining the best listing price for a top dollar sale. It is not an easy thing to do. That is why you need to hire a realtor that is experienced, knowledgeable, and understands the market, buyer psychology, and negotiation in order to obtain the most amount of profit from your home’s sale.
- Set your price based on facts and comparable sales
To market your house competitively, you need to set a price based on the facts so that your listing price is in line with buyer expectation. Buyers are savvy now and aware of what other homes are selling for, so they’ll know a good deal from an overpriced listing. All in all, the wrong list price generates the worst kind of publicity for your home: complete silence. Testing the limits of the market or not accepting the true market value of your home can be detrimental to the final selling price of your home.
- Analyze your competition, but keep the most weight on sales
Keeping an eye on competing listings will give you an idea of how buyers viewing all of their options will view your home (and your price) compared to others. Depending on the type of market you’re in and whether your experiencing low inventory, analysing the competition before setting a firm list price based solely on sales could provide you with an opportunity if everyone else is overpriced.
- Consider the current market conditions
As mentioned in pricing below market value, it’s important that you keep current market conditions in to consideration. Take a hard look at whether the market is hot, cool, or neutral, as well as buyer expectations, and different listing/sales price trends.
- An online evaluation is great, but not the most accurate
While obtaining an online evaluation will give you a generic analysis of comparables in your area, it may not always be up to date with the BEST comparables or have the inside market knowledge that a realtor does. When it comes to determining the market value of your home there are so many factors ranging from location, direction facing, buyer demand, inventory, condition or potential of your property, style & design trends, school catchments, and more that just can’t be summed up in an online evaluation.
- Competitive market analysis (CMA)
When potential buyers come and tour the home, your realtor should be providing you with a CMA which is an in-depth analysis of all the comparable properties, active properties, withdrawn listings and information on existing market conditions and your target market to help estimate what the market is indicating as the true value of your home. From there, they will advise you of a best pricing strategy based on your real estate goals.
After all, though marketing isn’t necessarily a pricing strategy, it can greatly impact the amount of buyers that are exposed to your home. Your realtor should also be providing you with their marketing strategy, and how they intend on selling your home by highlighting its best features both online and offline. The way that your home is marketed and the follow up strategies your realtor takes towards buyers is going to play a large factor into the number of offers that you receive. The more buyers that are exposed to your home, the higher chance of an offer (or multiples!) you will have.