Pricing Your Home to Sell
Every home seller's goal is to get the highest possible price in the shortest amount of time with the least amount of worry and inconvenience.
As a seller, you control the condition of your home, the terms acceptable to you, such as inspection days, financing, days to close, etc., your home's availability for showings, and most importantly, the list price a.k.a. the asking price.
Sellers often think they should start the list price high to give them room for negotiations and then lower it later if the home does not sell. This strategy (chasing the market down) oftentimes leads to a home languishing on the market, which leads to an even lower sale price. Reactive vs Proactive.
Overpricing a home to "test the market" is one of the biggest mistakes any seller can make, since the market was already tested by the recent comparable sales and active listings in your area.
The first 3 to 4 weeks that your home is on the market are the most important. That's when your home attracts the most attention, gets the most showings, and, experience shows, generates the best offers.
What makes those first 21 to 30 days so magical?
Let's assume that at any point in time there are 100 active buyers in your market (we'll use round numbers for the sake of this example), with 10 of those buyers exiting via purchase or otherwise, and 10 new ones entering the market every month.
Those active buyers have already "caught up to the market". In other words, they are quickly aware of any new listings that come online, having already seen, considered, and possibly placing offers on previously existing or competing homes.
Therefore, in the first 21 to 30 days, you have the potential of that entire pool of EDUCATED buyers seeing your home, considering it, and placing an offer on it.
Remember, these are buyers that have been actively participating and exposed to the market for weeks, months even. If your home is priced too high, they will know. Worse yet, your home may not even show up on their online search results because it's priced higher than their maximum list price. Missed opportunities.
What happens after the first month on the market when this pool of existing buyers is already aware of your property?
Ten buyers drop out and 10 new ones come in. Now, instead of having 100 potential buyers for your home, you're left with 10 new ones who are wondering why your beautiful home is still on the market.
The chances of generating the same level of buyer traffic and offers as in those first 21 to 30 days diminish greatly.
Putting your home on the market at a price that reflects what you want and not what the market will bear can cost you precious time and money. The longer your home stays on the market, the greater your chances of getting less for it. Offers that come in later down the road are almost always lower than initial offers, if any.
A large portion of your success in selling your home for the highest price possible in the shortest amount of time comes from pricing your home at "the sweet spot" from the onset. It is the most important decision you will make as a seller (after hiring us, of course...wink, wink).
What's the sweet spot?
The sweet spot is the list price that generates enough buyer showings to generate offers for your home. What's "enough buyer showings"? There's no right answer for that. It depends on the type of home you're selling, where it's located, price point, market conditions, and a number of other factors.
A general rule of thumb that we use under current market conditions is that if you go for a week with no showings or you have 10 or more showings without an offer, you might have an issue with condition, location, and/or price.
Know this. The more showings your homes generates, the more likely you are to receive offers for your home. The more offers you receive, the greater your chances of selling for the most money the market will bear.
How do you determine the sweet spot?
The home sale market is a hyper-localized phenomenon. It doesn't take a rocket science to determine your sweet spot, but it does take a professional who understands how YOUR local real estate market works.
The only way to get a clear picture of what your home is likely to sell for is by knowing:
- The sales price of similar homes in your neighborhood that sold recently (Comparable Sales)
- The list price of similar homes in your neighborhood that are actively listed for sale (Active Listings aka Your Competition)
- The list price of similar homes in your neighborhood that have gone under contract in the last 45-60 days (Pending Sales or Pending Listings)
- The list price of similar homes in your neighborhood that were listed on the market, but did not sell (Expired Listings)
- The absorption rate for all homes in your neighborhood AND homes in your price range (Supply and Demand)
The Comparative Market Analysis (CMA)
A Comparative Market Analysis (CMA) is a report that provides information about homes similar to yours that have recently sold, gone under contract, are actively listed for sale, or were listed on the market, but did not sell.
A good CMA not only tells you what similar homes are selling for, it also shows you how long it's taking them to sell, what their sale price was in relation to their original list price (the sale price to list price ratio), and what financing terms are most common for comparable homes in your area.
Comparable Closed Sales
Performing an analysis of comparable closed sales involves conducting an in-depth comparison of the size, age, location, features, architectural style, lot size, and condition of similar, recently sold homes.
Once we determine a list of quality comparable sales, we evaluate them, adjust them for differences in size, condition, location, features, etc., and establish a fair market value range that is used to arrive at a list price for your home.
It is ideal to analyze comparable closed sales that are no more than 3 months old when the market is in transition (like it is now), and no more than 6 months in a more stable market.
A pending listing is a home where a potential buyer and seller have executed a purchase contract, but a successful closing is still contingent upon inspections, financing, appraisal, title clearance, etc.
Pending listings have not yet closed, so they are NOT comparable closed sales. The actual sold price is not known until the transaction closes.
We compile a list of similar homes in your neighborhood that have gone under contract in the last 45-60 days to determine what price points and types of homes are attracting buyers to your neighborhood.
Pending listings do nothing to tell you what price the seller and buyer actually agreed upon, but they do help you indicate what direction the market is actually moving in.
Active Listings (Your Competition)
Once we establish a market value range for your home based on our analysis of similar, recently sold homes and pending listings, we compile a list of homes currently for sale in your neighborhood.
Active listings are NOT indicative of market value. They are your competition for buyers today.
Similar active listings that have languished 90, 120, 180 days on the market are usually overpriced.
An analysis of active listings in your home's market value range allows us to apply the economic principle of substitution to determine a comfortable price point that attracts QUALIFIED buyers for your home.
Oftentimes, that means pricing your home lower than your competition when the market is in transition.
When market conditions clearly favor sellers, it can mean pricing your home slightly higher than similar, recently sold comparable homes because of a lack of competition in the market.
It is important that you understand the absorption rate for homes in your price range and the overall market in order to determine what type of market (Buyer's Market, Balanced Market, Seller's Market) your home is in. More on that in a minute.
Expired listings are homes that were listed for sale for a set term (usually 180-365 days) and did not sell.
We compile and analyze a list of similar, recently expired listings in your neighborhood to avoid making the same mistakes other sellers in your neighborhood (your competition) already made.
It's the classic "learn from other people's mistakes" move.
The biggest reasons why expired listings don't sell is a combination of one, two, or all of the following:
- The home was not prepared to sell
- The home was not properly promoted and exposed to the market (poor marketing)
- The home was overpriced
Expired listings typically inform you that the list price for your home must fall below the price range of the comparable expired listings, all other factors being equal.
Pricing your home to sell involves knowing the overall absorption rate for homes in your neighborhood, as well as the absorption rate for homes in your specific market value range.
The absorption rate is the ability of the real estate market to absorb or sell all of the homes available for sale (supply) in a given amount of time.
For example, if 10 homes are sold every month in your neighborhood and there are 120 homes available for sale, it will take 12 months (120 divided by 10) to sell all of the homes available for sale. This does not count the number of homes which will eventually come on the market in addition to those already listed for sale.
Most housing experts define a level of absorption rate that signifies a "Buyer's Market" or a "Seller's Market" at 6 months.
Generally-speaking, anything over 6 months of inventory indicates a "Buyer's Market" and anything below 6 months indicates a "Seller's Market". The market is at equilibrium (Balanced Market) when there are 6 months of inventory available on the market.
For more info on the chart above go here.
The Odds of Selling
Dividing 1 by the number of months of inventory gives you the percentage of listings that are selling each month and provides you with the odds of selling in a given month.
To illustrate this point further, let's assume that there are 12 months of inventory on the market in your neighborhood. That means that your odds or probability of selling in any given month is 8.3% (1/12). The probability that you won't sell in a given month is 91.7% (11/12).
In order to place your home under contract for the most money the market will bear in the shortest amount of time possible, you must position your home in the marketplace where it will be in the best 8.3% in terms of value, which is a combination of condition, preparation, and price.
When listing your home for sale, will you position it where it will be in the top 8.3% that will sell next month or will you position it where it will be in the 91.7% that will still be listed when next month rolls around?
The Proper Usage of Price/Square Foot
When it comes to residential real estate (especially single-family homes in non-cookie cutter communities), we recommend that you NOT compare homes based on their price-per-square-foot calculation.
The price-per-square-foot metric does not account for many things.
It is impossible to compare two identical homes in a market like the Coral Gables single-family homes market. Architectural styles differ. Interior design differs. Updates and finishes differ. Lot sizes (and shapes) differ. Subdivisions differ. Etc, etc.
Not all square feet are created equally. You would probably value an additional 200 square feet of space in your dining room. However, what if those 200 square feet went to additional closet and storage space instead of a dining room? In the eyes of most buyers (in Coral Gables especially), the additional storage space adds more value to the home than a larger dining room. The price-per-square metric doesn't account for that.
The price-per-square-foot metric is best saved for looking at overall, long-term trends in an area or neighborhood.
Only when you watch how this metric behaves alongside median and average sale prices, can you gather a sense for buyer behavior and whether the local real estate market is appreciating, depreciating, or flat.
In short, the price-per-square-foot metric works well for identifying macro trends, but is generally not a good idea for micro-pricing strategies.
Determine Your Home's Sweet Spot and Sell For More
Thinking about selling your home, but don't know where to start?
No pressure. No gimmicks. No "we're the #1 ______".
Top tips to prepare your home to sell for the most money in the least amount of time.
Developing a well thought out marketing plan that is executed with specific timing in the utmost professional manner is key to selling your home for the most money in the least amount of time.
It's important that your home is easy to show. The more your home is shown, the more likely you are to sell your home for the most money the market will bear in the shortest amount of time with the least amount of worry and inconvenience.