Pricing property can be more art than science in today’s market. New-home builders probably have the easiest time of it — at least without shocking the buyers — because everything is new. There are no bare areas in the carpet, fingerprints on the appliances, nicotine-stained ceiling tiles in the rec room, and definitely no cat and dog odors.
With resale homes, the first weapon to use in the battle to sell the home is to price it correctly. The challenge for sellers is that in today’s market, they can’t expect to get the price that they might have gotten a year ago. The seller can still walk away with hundreds of thousands of dollars in gain, but perhaps not the absolute highest price ever in the community.
Pricing is the key. There are only a few ways to price a home for sale. Sellers need to use the accepted modes of pricing and get over the fact that their house may not be worth as much as it was 12 months ago.
The first model is probably the most popular — the comparable. By pulling up only the sales of your particular model, a real estate agent can determine a trend price. In a slowing market, your particular model may only have three sales in the last year. Such a low number of houses selling does not really create a trend line, especially if the last sale was six months ago.
If this is the case, you can create comparables across a few neighborhoods or even a whole ZIP code. Aspects of your home will be plugged into the comparable model: style of home — split level, Colonial, rancher; number of levels; number of bedrooms and baths; extra rooms; year built; square footage. Then, the averages on these parameters are tabulated for a target price. Keep in mind that you should remove the highs and lows.
Another way to price your home is to come up with a tax assessment model. This one takes a little bit more homework and data mining.
It’s tedious, but it can present one of the most accurate pictures of home values in your community.
The first step is to pull up all the sales in the community in the last six to 12 months. Tabulate the sales price total (let’s say it comes up to $10 million) and then tabulate the tax assessment total (our model will use $8 million). By dividing the sales total by the tax assessment you come up with a tax assessment-sales price ratio.
In this case, the community ratio is 1.25.
Multiply your tax assessment by the ratio figure, and it will determine your target asking price. For example, if your tax assessment is $250,000, multiply it by 1.25 and you’ll arrive at $312,500 as a target asking price.
Again, be careful to pull out the anomalies that represent overbuilt properties. The largest, biggest house in the community could affect your price, as well as the pre-foreclosure sale. You’re looking for average prices with average situations for average results.
If you have to use all these methods to arrive at a price, then your real estate professional should weigh in.
The biggest challenge in pricing the home is a seller’s level of greed. Sorry to be so blunt, but sellers always want more, regardless of the market condition.
My advice is to get over it. Waiting around for the “right” buyer is just plain foolishness. If you’re putting your home on the market, don’t waste your time, the buyers’ time and the agents’ time with an unrealistic asking price.
If your agent provides feedback from colleagues that your house is overpriced, move from denial into acceptance and price the house right. Remember, the goal here is not to price the property as high as possible, but to sell the house. Good luck.
M. Anthony Carr has written about real estate since 1989. He is the author of “Real Estate Investing Made Simple.” Post questions or comments at his Web log (https://commonsenserealestate.blogspot.com).