Price is Everything

Price is everything
Home owner equity

Home sellers want to get top dollar, and home buyers want value.  This is a hard to truth to acknowledge, but regardless of your home’s condition, location, etc. it all comes down to the home sale price.  Don’t just take my word on it. There’s plenty of peer reviewed research on the topic.  For example, Han and Strange’s study that demonstrates how home price effects home buyers’ response and motivation to visit and/or make an offer on your home (What is the Role of the Asking Price for a House?; Journal of Urban Economics; Volume 93, May 2016, P115-130).  The conclusion indicated that list prices that are consistent with neighborhood values (not overpriced) maximize home buyer engagement.  Price is everything .

The “price is everything” concept applies to any housing market.  It applies when the market is slow, and even when the market is doing well.  Take for example this year, when it seemed as if any home that come on the market sold quickly. However, there’s a caveat: homes that were priced correctly sold quickly.  Homes that were overpriced took much longer to sell.  For those overpriced homes that sold, they sold for less than original list price. 

As home prices continue to appreciate, home sellers are eager to push the envelope when setting their list price.  But home buyers are savvy and won’t overpay for a home, so creating a realistic pricing strategy is key to your home sale success.  Things to consider include your home’s condition, your local market, and your competition.

The main tool to help you decide on a list price is the CMA (comparative market analysis), which you can get from your agent.  The CMA is not an appraisal, but it is a snapshot of market activity for similar homes in your market area.  The CMA can show how homes like yours (that are similar in size, style, age and condition) sell by price and days on market.  Typically, the CMA is broken down into 3-month, 6-month, and 12-month segments to show how home sales are trending.  Compare active homes to homes that sold as well as those that didn’t sell for sale price and days-on-market).  Also be aware of any seller concession, which can affect your net sale.  Finally keep track of neighborhood active listings, this is your competition that can also help you modulate your price if needed.

To help sellers understand how their homes compare to the competition, I used to advise clients to visit neighborhood open houses.  This was helpful in understanding how to prepare their homes by comparing the homes’ condition and features.  Although visiting open houses may not be practical for you these days, technology makes it easy to see the interior of home via HD pictures, virtual tours and floor plans. 

Another pricing strategy that many home sellers use to get more buyer traffic is “just-below” pricing.  Just-below pricing is reducing your decided list price below the rounded number.  For example, if your list price is $450,000, the just-below price might be $449,900. This strategy was demonstrated through research by Beracha and Seiler (The Effect of Pricing Strategy on Home Selection and Transaction Prices: An Investigation of the Left-Most Digit Effect; Journal of Housing Research; 2015; Vol. 24, No. 2, pp.147-161).  Just-below pricing works best the list price is rounded down to the nearest hundred or thousand.

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By Dan Krell
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Disclaimer. This article is not intended to provide nor should it be relied upon for legal and financial advice. Readers should not rely solely on the information contained herein, as it does not purport to be comprehensive or render specific advice. Readers should consult with an attorney regarding local real estate laws and customs as they vary by state and jurisdiction. Using this article without permission is a violation of copyright laws.