How To Price A Home
A home will sell for two reasons: price and exposure. In the real estate market for the 21st century, exposure has taken a new turn with the advancement of many Internet technologies for real estate. Be it as it may, the real estate industry’s new exposure tools will not help a home sell if the home is not priced correctly. When considering putting your home up for sale, it is very important to first analyze your real estate market on a subdivision level, not a metro-area level, to derive the features and amenities that are driving the value in your neighborhood. You must then establish a pricing strategy in accordance with your financial and timing needs.
Identifying Selling Needs
No two real estate transactions in today’s world are identical. As a homeowner, only you can derive your needs with selling your home. We will call this your “win” in your real estate transaction. Be careful; the years of owning your home can cause a strong emotional attachment and can cloud logical thinking. This is absolutely normal, and fortunately, there are professionals available across the nation to help bring a logical, non-emotional approach to selling your home. These professionals are known as real estate agents, and each can be a vital tool in making sure you get the most amount of money for your home in the least amount of time, and with a minimum level of stress.
You will want to focus on your timing needs first. Do you want to sell your home in 30, 60, or 90 days? Are you looking to have a contract by that date, or to be closed and moving into your next home? Always remember that in typical real estate transactions, buyers will take approximately 30 days to close on a home. This time period involves getting inspections, negotiating repairs, and securing financing with their mortgage professional.
Are you going to need a certain amount of equity after closing on your home? If so, lets understand this number from the very beginning and make sure that this need will be satisfied out of the sale of your home.
Understanding Your Local Market
The next step to selling your home is to make sure that you have leverage. Leverage is the key ingredient to winning in a real estate transaction. When selling a home, leverage is achieved by pricing your home at a market price that will attract the most amount of buyers for your area. Homes can be priced one of two ways: negotiation and market. Pricing for negotiation will result in exactly what a seller expects: negotiation on the asking price. Pricing at market will allow your home to be exposed to the widest range of buyers and enable the seller to have a leveraged position in the real estate transaction.
There are three types of market research that one must analyze when pricing a home: sold, expired, and active properties. First, the sold history for your subdivision for the past year will give great detail on the selling trends in the neighborhood. By analyzing the sold price per square foot of homes with similar features, amenities, and condition, you can easily identify your selling range in relation to price per square foot. Price per square foot allows you to level the playing field and compare apples to apples. A homes square footage is a basic unit of real estate, and all homes will be priced according to the size of the home. At this point, you will want to gain an understanding as to why homes are selling in the per square foot range that they are being sold in. Once this step is complete, we can have a higher level of understanding as to which homes are desirable and getting the most money, and which are the exact opposite.
After you have made conclusions as to why homes are selling in the range that they do, you can then test these conclusions on homes that did not sell, or expired properties. This is done to make sure that the conclusions derived during the analysis of sold properties are accurate and applicable to your real estate transaction. Remember: Not all real estate transactions are typical and your conclusions may not be able to explain exactly why a home did not sell. You can usually assume that if your conclusions can logically explain why 3-5 homes have not sold in the past 6 months, then your conclusions are accurate enough to be considered factual.
Find Your Homes Selling Range
Now that we have an understanding as to why homes are selling in the range that they are, we can then look at the features and amenities of your home and identify the price per square foot range that will be most suitable for your home’s asking price. For this information, we are going to look back at the one year sold history of your neighborhood.
It is important to be realistic and logical in this step of the pricing process. If your home is 1500 square feet, look at what other homes within 200 square feet are selling for per square foot. You will also want to take into consideration the other main features that buyers are interested in: bedrooms, bathrooms, year built, and unit stories. After you have pinpointed homes that are similar to yours, see the maximum and minimum price per square foot that they are selling for to give your home a possible selling range. Don’t be surprised if this is a large price range. We are simply identifying the range at which similar homes are selling for. We will then take your needs to determine what part of this selling range your home should be priced in.
Price According To Needs while Analyzing Competition
Do you remember earlier when we identified your win in your transaction? These rules for selling your home, usually timing and required equity, will help you determine the most appropriate price entry point for your price per square foot selling range. You will want to make sure that your final asking price will satisfy all of your needs.
Let’s say for example that you must sell your home in 90 days. Your main concern is to make sure that you receive an offer within these 90 days, and are perfectly fine with closing 30 days later. You also want to make sure that you will net at least $25,000 from the sale of your home after paying all selling expenses. The next step is to look at the amount of inventory for homes with similar features to your home. The most important factor to look at is the number of bedrooms. In the past twelve months, how many homes were sold that had the same number of bedrooms as yours? How many homes are there on the market now with the same amount of bedrooms? When you know these two numbers, you can derive the amount of inventory available. If there were 12 homes sold with 3 bedrooms in the last 12 months, that means there was on average one home sold per month. If there are six homes available, it is safe to say that there are 6 months of inventory.
For our example, we must receive a contract on a home within 90 days. If there are 6 months of inventory available, then it is accurate to state that the current level of competition will take a toll on your final asking price due to your 90 day requirement to receive a contract. You must make sure that your home is more attractive than your competition, especially now that we know that we must receive a contract in 90 days and there is 6 months of inventory available.
Using this same logical approach, you can determine where your home must be priced in your selling price per square foot range. Make sure that you stay non-emotional and realistic when finalizing these numbers. You want to make sure that you can satisfy all your needs when selling your home. If your final asking price is reduced due to a high level of competition, and this reduction causes you to not net the equity you need, then you will simply lose by putting your home on the market. Be sure to understand this concept and be assured that you are making the most informed, intelligent decision possible. Selling your home can be a very tedious journey; you will want to make sure that your time invested will be able to satisfy your selling needs or else your efforts will be wasted.