Pricing Your Home For Sale

Professional appraisers sum it up in three words -- buyers make value. Ultimately, the value of your home is what a reasonable buyer is willing to pay within a reasonaable time. Setting an asking price for your home requires that you anticipate what most buyers would be willing to pay. This requires a close look at comparable home sales in your area, as well as making an assessment of the state of the real estate market itself. Pricing correctly is fundamental to the successful outcome in the sale of your home.


Market Analysis

Homes listed for sale and recent closed sales in your area will usually provide relevant comparable data for pricing your home. Closed sales show "market confirmed" prices, while listing prices indicate the current trend in pricing. Later, when your home is appraised for the buyer's loan, the appraiser will only consider recent closed sales. Asking prices will not be considered. A sales price that is solidly based on recent sales of similar homes will not have a problem when the price is later reviewed by an appraiser. If your home is superior or inferior to most homes in the neighborhood, or if there are few or no nearby sales, then anticipating the responses of potential buyers will be more difficult. In this case, a trial and error strategy may be necessary.


Real Estate Market

An important aspect of pricing is to consider the state of the real estate market. The market may favor buyers or sellers, or be in balance. An indicator of the quality of the market is the number of months of standing inventory in your market and price range. Consider your market area to be all neighborhoods that offer competing choices for your potential buyer. Here is how to do that:

Count the number of sales in your market area and price range for the past 12 months.

Divide the number of sales by 12, to get the number of sales per month (sales rate).

Count the number of homes on the market now.

Divide the number of homes on the market by the number of sales per month (sales rate).

This will show you the number of months it will take to clear the current inventory.

Seller's Market

Less than 6 months of standing inventory is considered a seller's market. In a seller's market the number of buyers is large in proportion to the number of homes for sale. The demand for homes is greater than the supply. Buyers must compete with each other for the available inventory. There may be multiple offers received shortly after a property goes on the market. Buyers will submit the highest possible price and terms that they feel the market will support. Prices will trend upward. In a climbing market, pricing slightly above recent sales is appropriate.

Buyer's Market

More than 8 months of inventory is considered a buyer's market. In a buyer's market the number of buyers is small in proportion to the number of homes for sale. This situation can be created by high interest rates, employment decline and excessive building. A low number of buyers equals a lower price. Sellers must compete with each other for available buyers. Prices trend downward. In a falling market, prices should be set at the lower end of the range, because time works against you. In six months prices may be lower. This may be difficult to do, especially if your home was purchased at a higher price.

Using Price Per Square Foot

"Dollars per square foot" is often used as tool for comparing homes of varying sizes to determine a list price. When price per square foot is used, it is important to keep in mind that you must make a sliding scale adjustment from larger to smaller homes. In other words, the larger the house, the lower the price per square foot for comparable homes. This is because the core square footage of a home has a higher value than the peripheral area. For example, the price per sq. ft. on a 1,000 sf home will be much higher than a 5,000 sf home, with other things being equal. We usually graph the neighborhood prices per sq. ft. to get a visual picture of the market in the neighborhood, as well to see how much the price per square foot declines from smaller to mid-sized to larger homes.


Should you price