Tips for Pricing a Home
When a potential client approaches you to discuss placing their home on the market, one of your first steps following this meeting will be using advanced software to formulate a comparative market analysis. Your CMA will include your proposed listing price, your rationale behind this price point, and an overview of your marketing plan.
With that in mind, let’s discuss tips for pricing a home in the Middle Tennessee area throughout 2023 and beyond. Whether your listing is a small fixer-upper or your first luxury home, our suggestions will ensure that you are able to explain why your CMA is fair, accurate, and has priced the home to sell—without missing out on a chunk of potential earnings.
The Rationale
First, it’s important to remember that there is no single “right” price for a home. If a selection of realtors and brokers were asked to run a listing through their software and formulate a CMA, their programs may suggest a range of values. Rather than nailing down the “right” price, your job is to be able to fully explain to your client why you have chosen the price you are suggesting.
Comparable Properties (Comps)
A homeowner may believe that comparing the sale price of neighboring properties is all the market analysis that is necessary. Be fully prepared to explain that differences in floor plans, square footage, features, updates, level of home maintenance, landscaping, curb appeal, and staging will all influence pricing.
The home three doors down may have sold for $75,000 more than you’re suggesting for your client’s home, but your client will not be aware that the homeowner had to invest $68,000 in appliances in both the kitchen and laundry room. Once you break down this type of difference, your client will be better equipped to determine whether or not such investments comport with their budgetary constraints and preferred timetable.
Days Listed
Both you and your client want their home to sell quickly. A home that is languishing on the market will lose value, and you will lose more profitability the more weeks you spend working on the listing. Your shared hope will be to price the home to sell quickly, but not as a result of an undervaluation.
The Downsides of Overpricing
A real estate agent who has poor ethics may decide to suggest an unreasonably high asking price in order to secure a listing. They will lead the seller to believe that they have the ability to sell at this higher price, when in reality, they plan to wait as the property sits untouched on the market. After some time has passed, they will “reluctantly” convince the homeowner to reduce the asking price, thus arriving at a price point that any other agent would have recommended from the outset.
Do speak with your client about these unscrupulous tactics and be transparent about the reasons you will not suggest listing for an unreasonably high price.
When a home is overpriced at its debut, buyers may not even see it. Remind your client that buyers set their search parameters online, among which is the top of their budget. For example, a home listed at $725,000 instead of $699,000 (the actual price you’re hoping to secure) will bypass all buyers who cap their searches at $700,000.
Furthermore, even if a disproportionately high price draws a potential buyer, a mortgage lender isn’t going to approve a loan that outstrips a property’s appraised value. Home upgrades, landscaping, curb appeal, and staging may fool a bidder, but there is zero chance a bank will be taken in by these tactics.
The Downsides of Underpricing
On the other hand, there are realtors who will urge a client to list below market value to drum up interest in their home. The hope is that a bidding war will ensue, thus netting a higher price than even a realistic listing would have done.
However, this approach carries the risk of turning away discerning, fully funded buyers who suspect that this reduced price signifies issues with the property that would only be uncovered during their efforts at due diligence.
Additionally, a home may sell rapidly, but without a bidding war ever taking place. The consequence for you and the homeowner could be substantial profit left on the table unclaimed.
Managing Homeowner Expectations
One of the trickiest parts about presenting a CMA is managing your client’s expectations. Your client may be emotionally attached to their home, and at a minimum, they will want to recoup every shred of capital they have invested over the years. Nostalgia and sweat equity may have falsely inflated their understanding of what their home is worth.
Never tell your client that their investments of time and money aren’t important. Instead, validate their feelings while gently, yet firmly, insisting on their viewing the sale process as purely transactional. You can learn to tread this fine line, and you will have to if you want to help your client sell their home and feel good about working with you. Remember, both of these factors are essential to building a word-of-mouth business like yours.
Adjusting The Price
It is quite common for realtors to have to suggest price adjustments despite their absolute best efforts to lock down the sweet spot from the outset. If you find yourself in this situation, regroup with the homeowner as quickly as it’s warranted.
Discuss their options. Landscaping improvements, staging upgrades, and reducing the price are all viable options, but the decision to reduce immediately or attempt another approach will ultimately be the seller’s decision.
In today’s bustling housing market, a fairly priced home should be snapped up quite quickly. If all other methods fail, it’s up to you to gently urge your client to be more flexible with regards to the listing price.