Home Pricing Strategies & Market Value 101
Pricing Strategies for Home Selling Success!
Written By: Mariko Baerg, REALTOR of Bridgewell Real Estate Group
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When it comes to selling a home in Greater Vancouver, the right home pricing strategy can make or break you.
If you price too high, you risk being on the market for too long and your home going stale, price too low and you risk leaving money on the table by giving buyers a perception that you are asking for below market value.
This blog goes through how to determine home value as well as the different pricing strategies for putting your home on the market.
We go through the pros and cons of each strategy, so that you can determine the best listing price for your goals.
Keep reading for home pricing strategies 101!
First, let’s discuss how to find the market value of your home:
How to determine house value
When it comes to determining the market value of your home and what you should price it at, below are the main factors that affect home values:
- Location of your home
- Condition of the property (maintenance)
- Style & Design (structural & cosmetic)
- Exposure (marketing/your realtor)
- What comparable homes have sold for in the last 30-60 days
- What comparable homes are currently listed for
- What homes haven’t sold in your area (expired, withdrawn)
- The current market conditions
- Market positioning (your listing strategy)
When pricing your home, you’ll need to take all of these factors in to consideration.
Your realtor should be providing you with a competitive market analysis (CMA) in which they come tour your home, show you all the comparable properties, and 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.
Determining value and a proper pricing strategy (in addition to ensuring your home is exposed to as many potential buyers as possible) is not an easy thing to do. It’s important that you 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.
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 in to the number of offers that you receive.
Home Pricing Strategies: 3 Different Options to Choose From
Now that you understand the basics of market value and how to determine house value, let’s look at three common pricing strategies in real estate:
Pricing Strategy #1: Price Below Market Value
With this strategy, you generate a lot of interest on your home in the hopes that multiple Buyers want to make an offer on your house. The more offers you generate, the more pressure there is on the buyers to drive up the price of their offer. Usually this results in a quick sale, within 5-9 days or less.
If you’re in a changing market (downturn) or a neutral market, then this strategy will result in the quickest sale.
Pricing below market value in a changing market can be recommended, solely because in a market that is adjusting downwards “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.
In a hot market – we’ve seen a lot of sellers price well below market value, which is why you may have seen “sold $200,000 above asking price” flyers in your mailbox and on the news.
We find that this strategy works well in neighbourhoods/style of homes with a high demand and a low supply, and that are substantially renovated cosmetically. Hot neighbourhoods, houses with character and houses in great school districts have also done well with this pricing strategy.
BUT… Warning: This strategy doesn’t always work, and can backfire on you really quick. While this strategy is the best to achieve a quick sale, you may be leaving money on the table when it comes to the sales price. Most buyers just don’t understand the difference between listing price and market value.
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 or that the offers you do receive won’t be as high as you expected. So 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 hundreds of thousands of dollars above the listing price, regardless of the number of offers you received.
Pricing Strategy #2: Price at Market Value
A safe option for any market is to price at market value – it’s a strategy that will typically result in a good price and a home sold in a reasonable period of time.
Pricing at market value means that in the worst case scenario where you receive 0 offers on your home on ‘offer day’, then as you move forward you can still negotiate for at least the listing price or close to it if the listing goes past the first weekend of open houses.
In the case that you only receive 1 offer on the ‘offer day’ and your realtor is a great negotiator, then you should be able to receive at or around the listing price, possibly even higher if you’re in a hot market.
In the case that you have multiple offers, meaning 2 or more, then in this scenario you may actually be able to set a new benchmark and receive about listing price (and thus above market value!). Another positive to this is that, as mentioned before, some buyers [and unfortunately some realtors] do not understand the difference between listing price and market value. If they are in a multiple offer scenario, all they will know is that they will have to offer above the listing price.
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’d 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 an entire month, then you should be repositioning your home in the market.
- It can be a lot of work to have your home on the market for so long:
If you’re living in a home and selling it, it can be a lot of work to always keep it clean and ready to show at a moment’s notice. No strong cooking smells [which usually means consistently eating out], doing your bed every morning, washing all the dishes before you go to work, cleaning the countertops…. The list goes on and on and it gets old really fast.
Wondering about how to price your home to get the most PROFIT out of your sale? Reach out to us for a FREE market evaluation & pricing consultation by calling 604-765-0376. Prefer text? 604-319-0200. or email email@example.com to start a conversation.
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