A home seller's strategy for determining an initial list price can be a critical decision even in a seller's market. When working with clients who are preparing to sell, real estate agents can provide as much data, guidance and advice as possible but ultimately it is, and should be, up to the seller to pick the price. If you are in the process of preparing to sell, or thinking about a future move, read on. Below are three approaches to pricing that can potentially yield quite different results. It's best to consider all scenarios before making a splash in the market.
Strategy 1: Find the Sweet Spot
Gather recent sales data and formulate a price as close to those numbers as possible. What kind of data exactly? As an agent I gather this data for my clients using the most accurate and up-to-date resource available in our local market — the Northstar MLS database. I compile a list of comparable properties sold in the past 6 months (or fewer if possible), close in proximity, on similar streets, etc. I also look for the competition. What's currently on the market but hasn't sold yet? And, what homes are under contract waiting to close? When available, I'll also check for expired listings — homes that failed to generate real interest during their time on the market. This side-by-side comparative report, or CMA (Comparative Market Analysis) is a useful tool to begin dialing in on a target list price. In addition to comparables, or comps, I also consider inventory supplies, seasonal differences and sale price over time. I use Infosparks (an extension of the MLS) to zero in on trends in specific neighborhoods, including months supply of homes for sale and changes in median sale prices within the past year.
The goal of finding the sweet spot is to attract exactly the right buyers who are ready, able and willing to make an offer. Buyers who have been shopping around and doing their research will recognize a fairly priced home and be willing to act in a timely manner. If they've been following the market and touring similar homes, they've probably looked at some of the same comps used to determine your price.
Strategy 2: Less is More
Find the sweet spot then list for less. A lower-priced home catches people's attention and generates excitement. In a seller's market this is a sure way to generate multiple offers in no time, depending on location and condition. If your goal is to sell quickly, consider going in low. Doing so might actually bring in higher than expected offers.
If your home is in need of updates and repairs but you lack time, resources or motivation for getting them done, this strategy can also be a good option. Buyers' expectations are higher than you may think and they're often looking for any reason go low. For many shoppers outdated finishes and disrepair are reason enough to offer less.
Strategy 3: Retail Pricing
Find the sweet spot then list higher. Some sellers worry about leaving money on the table if they list too low. They want to "just see" if anyone will bite at a higher price, then go down later if they have to. Or, maybe they can't afford to take less, or are only willing to sell if they get a certain price. If you decide on this approach in a seller's market and are serious about selling, you should plan to revisit your strategy if nothing happens after a couple of weeks. Those weeks, especially the first week (and now days and even hours) are critical moments in the life of your listing. First impressions are created and opinions are formed. A motivated buyer might love your house yet deem it overpriced, quickly move on and end up buying another home before you lower yours. Some shoppers are just not in a position to wait out a price drop. And, if the price is eventually reduced people might start to ask, "What's wrong with it?" If you go with this strategy, be prepared for a longer time on market. Stay flexible and open to reductions earlier than later.
Heidi Swanson is a Realtor® based in St. Paul, Minnesota. She writes a blog to share information on a variety of real estate related topics including buying and selling, market conditions, homeownership trends and more. Reach her at heidi@lyndenrealty.com or 651-503-1540.