By Celeste M. Smucker – When home owners are ready to sell their house, they usually have a good idea about what they think it’s worth. Similarly, buyer prospects have a strong opinion about what they are willing to pay for it. Sometimes these numbers are far apart. So what determines what a home is worth and what it will sell for?
Ultimately those questions are answered when buyers and sellers come together and agree on a price via a negotiation with the help of their agents. However, before that can happen, the sellers and their agent set the price. How important is the listing price? It is often one of the most critical elements of a home’s marketing plan determining not only whether the home sells but how long it stays on the market.
Price Is King
The price you set on your home has a huge impact on its marketability, and over-pricing it, as sellers often want to do, can be a serious mistake.
When buyers search for available properties, most have an idea of what they can afford and, perhaps more importantly, what they are willing to pay. When they look for options they set an upper limit on price, and what pops up are all the homes under that value.
If they are further along in the process their agent will do the same, generating a list of affordable options to look at. If your home is overpriced, chances are good it won’t appear on either list and therefore won’t get shown to all of the buyers who can afford it. On the other hand, if it is shown to buyers in a higher price range, they will most likely reject it when it doesn’t compare favorably to similarly priced homes.
If your home stays on the market too long, you will be forced to drop the price until it finally sells. Unfortunately, often this means the sales price is less than it would have been if the home had been priced correctly to start.
The Art of Home Pricing
When agents suggest a price for your home it is based on several factors. They start with a comparative market analysis (CMA) that compares your home with others in the area that are similar in size and quality and have sold recently or are currently pending, meaning they are sold but not closed. Pending prices are less accurate because until the new buyer signs all the paperwork at closing and has a key in hand, the actual sales price is a closely guarded secret.
Agents also take into consideration the condition of your home compared to others nearby. Their expertise in this area is critical and based on familiarity that comes from pricing or showing many of these same homes. The ideal price is one that reflects your home’s best attributes while being inviting to buyers in your price range.
As part of getting your home ready to sell you will need to make it look its best by sprucing up, decluttering, cleaning out closets, and painting the walls neutral colors when indicated. Your preparation should also include mowing the lawn, trimming shrubs and trees and freshening the mulch in order to assure the best possible curb appeal.
The stakes are higher if you are competing against new homes. Marina Ringstrom with Long and Foster Real Estate characterized new construction, with its energy saving and other benefits, as a “strong factor” in our local real estate market adding that to show well “existing homes must be priced well, in good condition, and where necessary, upgraded.”
While buyers and sellers negotiate a price for a home, this value is also subject to approval from an independent third party, the appraiser. He or she provides their best estimate of the property’s value for the mortgage company that uses the figure to determine how much it is willing to loan the new buyer.
Arriving at a value that is a true reflection of current conditions is challenging in a market like ours in which prices are rising thanks to low inventory and high demand. If recent sales don’t justify the negotiated price, an appraisal can come in low. In this situation, to keep the sale on track, either the buyer will have to pay more than the appraised value or the seller will have to come down from the agreed upon price.
Research shows that green features help homes sell faster and for more. Until recently it was difficult to value a home’s green updates, but that is changing as organizations such as Virginia-based Pearl, a home certification company, now provide third party verification for what they call the value of “high performance assets,” items that contribute to making a home “healthy, comfortable and energy efficient.” Appraisers can now use an addendum to incorporate these green updates when evaluating your property for the mortgage company.
Cynthia Adams, Pearl’s CEO, reports that nationally, studies show “third-party home performance certifications like Pearl’s add an average of 4 percent to the sales price of high-performing homes, compared to similar homes lacking these assets.” Here at home, she continued, information based on sold prices for the last two years, shows an association between green features and both higher sales prices and fewer days on the market.
What is Your Home Really Worth?
Valuing your home is both an art and a science, and while the market price reflects buyer and seller preferences, this must be backed by the appraiser’s best estimate of your home’s true value. In this challenging market, it is even more important to consult your REALTOR® about how best to prepare and price your home for a profitable sale.
Celeste Smucker is a writer and blogger who lives near Charlottesville.