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.

Original published at https://dankrell.com/blog/2020/12/20/price-is-everything/

By Dan Krell
Copyright © 2020

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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.

About Your List Price

list price
Where are home buyers finding their homes?
(infographic from nar.realtor)

When you’re selling a home, a consequential decision is your list price and pricing strategy.  Deciding on your price can be confusing because, sometimes, what you hear from the media is not exactly what your real estate agent is telling you.  Additionally, making matters worse is hearing disparate information from different real estate agents.

For example, your home’s market value is not the same as a list or sale price.  It’s a common mistake to assume that your home will sell for “market value.”  However, market value is an appraisal term that describes a probable price that a home buyer would pay in any given market.  Market value can vary depending on the scope and purpose of the appraisal.  Knowing the “market value” for your home can build up expectations for your sale that may not be realized.  However, until you do an analysis of comparables and market conditions, you won’t have a realistic list price. 

Adding to the confusion is hearing that your list price may not necessarily be the sale price.  In a buyer’s market, your sale price could be less than list price.  In a seller’s market, your sale price could be more than list price.

There’s definitely a science when deciding on a list price, where you can work with real numbers.  Unfortunately, the “science” of home pricing is inexact.  Determining a list price is much like baking cookies.  The end result is similar, but expert bakers have their own recipe.  So, although listing agents don’t always agree, there’s some commonality in determining a list price.  And much like baking, some pricing “recipes” are better than others.

Part of the inexact science of home pricing is creating a market analysis.  The market analysis will guide you in deciding a list price by providing a price range.  Although there are basic guidelines for collecting data, agents don’t always agree on the process.  However, once you pinned down a price range, then you can decide your pricing strategy by considering your selling motivation, the economy, and housing market conditions.

Basically, the market analysis is deciding which recent sales are most similar to your home.  The best comparables are homes in your neighborhood that sold in the previous three to six months.  The homes in your neighborhood are likely very similar to yours, and recent sales are an indicator of market conditions.  However, it’s common to go outside your neighborhood when similar neighborhood sales are not available.  These comparables provide a price range.  The more adjustments made to comparable sales, the less exact your analysis.

Besides looking at recent sales, you should also look at neighborhood homes that are actively on the market.  Active home sales are your competition.  These sales can reveal additional market conditions by comparing price and days on market with your sale comparables.  You should also consider recent withdrawn and expired sales because they provide insight about pricing strategies that may not work in the current market. 

Your pricing strategy is how you decide to position your home in the market.  Your goal is to sell for top dollar and least amount of time on market.  In determining your pricing strategy, you need to consider your competition, as well as your motivation, economy, and housing market conditions.  Also remember that the list price may have to be adjusted as days on market accrue, while keeping an eye on your competition.

Original article is published at https://dankrell.com/blog/2020/02/14/about-your-list-price/

By Dan Krell
Copyright© 2020

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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.

How to Market a Home Sale

Some homes seem to sell themselves while others need help.  If your home needs help, understand that effective use of marketing tools can increase your home’s appeal, as well as communicate your home’s value to sell it faster and for more money.  Home sale marketing tools have been used ever since real estate brokerage began.  Although marketing tools come and go, some have stood the test of time.  So you might be wondering how to market a home sale…

How to market a home sale according to a Realtor

how to market a home sale
Housing market supply and demand (infographic from keepingcurrentmatters,com)

If you ask your Realtor how to market a home sale, they may tell you about open houses, print ads, and the internet.

Probably one of the most effective marketing tools an agent has is the open house.  Unfortunately, the open house is under-used, as well as often misused for the agent’s personal gain.  Although the open house routine has changed, brokers have been holding open houses for over one-hundred years.  The open house is the ideal time to communicate directly with home buyers and their agents about your home’s appeal and value.  Try to avoid the use of open house gimmicks (such as cook-outs and carnivals) because they detract from the home sale message.  Furthermore, make sure your agent is focused on selling your home during the open house, instead of focusing on signing-up new clients.

Although not as prevalent today, print advertising was a home marketing staple for over a century.  Today, the majority of home buyers search for homes online, so it’s not likely that a print ad will have a wide audience.  However, agents will uses post cards and door hangers to announce their new listing. Nonetheless, print advertising is still used to market niche homes and agent self-promotion. 

You might be wondering how to market a home sale online? Internet and digital marketing is the most widely used form of advertising today.  Internet marketing is easy because the MLS syndicates your home listing across numerous websites automatically!  Although the syndication is automatic, your agent still needs to check how the listing appears.  If the listing has incorrect information, it needs to be fixed or can hamper results. 

There are a variety of other internet advertising opportunities, including a dedicated webpage, pay-per-click, and video.  However, results, if any, may be limited if not used effectively. 

One of the most important marketing tools to relay your home’s appeal and value is the camera.  Technological advances in MLS feeds and digital photography now allow home buyers to see many pictures of your home and its surroundings in crystal clear clarity.  However, don’t solely rely on new photo technologies for virtual tours, as the viewing ability may be limited.

Virtual reality (VR) is a cutting-edge tech being touted for virtual tours.  Let alone that most home buyers don’t own a VR device, many buyers are likely to search homes when wearing a VR device is not appropriate, such as at work or on the metro.  Even though VR marketing sounds cool, it’s reach is still very limited.

Although VR is yet to be an effective tool, augmented reality such as 3D virtual tours are coming of age.  Although there are still limitations, updated internet browsers, broadband, and new 5G allow home buyers to view your home as a 3D model.

The basics.

Regardless of what real estate agents will tell you, the best marketing tools for your home are the list price, your home’s condition, and its location.  However, a high list price, poor condition and/or location can be helped by your agent’s marketing tools.  Effective marketing tools can also help increase your home’s appeal and communicate the home’s value.  But ultimately, the nitty-gritty of selling your home depends on your agent’s savvy, ability to facilitate an offer, and negotiate a price.

Original article is published at https://dankrell.com/blog/2019/10/15/how-to-market-a-home-sale/

By Dan Krell
Copyright© 2019

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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.

Home market value

home market value
Home Market Value (infographic from keepingcurrentmatters.com)

It’s normal for homeowners to wonder about their home market value. After all, home sales and prices have been making headlines for well over a decade.  But you certainly can’t get a home market value from a headline, nor can you assume it from a neighbor’s sale.  The reality is that your home market value could vary depending on whom and when you ask.

A timely and important review article by Michael Sanders recently published in the Appraisal Journal asks the question “what does Market Value Mean?”  (Market Value: What Does It Really Mean?; Appraisal Journal. Summer2018, 86:3, p206-218).  The article correctly points out that determining “market value” can realize different results depending on the scope and purpose of the appraisal.  You can see how this might be problematic if you’re trying to determine a home’s value when divorcing or trying to sell an estate property.  Some mortgage lenders even have different value criteria depending on the loan product and purpose.

Sanders suggests that “market value” undergoes scrutiny when valuations are difficult and appraisals are questioned (e.g., during a recession).  However, having a discussion about the meaning of “market value” now, when there is relative market stability, is probably meaningful for the industry and consumers.  Interestingly, the semantics of “market value” have changed through the years, and ultimately depends on the application.  He points out at least twelve similar but different legal definitions of “market value.”

Sanders suggests that Richard Radcliff, an appraisal pioneer of the 1960’s, was ahead of his time by advocated for most probable price valuations.  An ongoing debate in appraisal circles is whether “market value” is the highest price or probable price.  However, it wasn’t until the 1980’s when appraisal articles academically contemplated the association of “probable sale price” and “market value.”

Sanders quotes Richard Ratcliff saying, “appraisal is largely the predicting of human behavior under given market conditions.”  Sanders quips about an “ideal world”, where “appraisers would apply market value definitions using a relatively consistent and objective standard, and reflect conditions in the market as they exist, rather than how others might wish them to be.

Although the accepted dictionary definition of “market value” is the price a buyer is willing to pay for your home, market value and sale price could be different (and often is).  And according to Sanders, an appraised “market value” isn’t necessarily the price for which your home may sell.

At this point you may be asking yourself, “how much is my home really worth?”  For the answer, you may have to ask a Realtor.

Realtors use market data to prepare comparative market analyses (CMA) that can help buyers and sellers decide on a sale price.  Although a CMA is not an appraisal, it is a technical and methodical professional analysis that provides a snapshot of the market.  The CMA is typically more refined in scope than an appraisal, such that it is usually limited to a neighborhood and home criteria.  Additionally, depending on the location and availability of comparable sales, it can provide a 30, 60, and 90-day probable sale price range based on market trends.

If you’re planning a home sale, a Realtor’s CMA may be your best source of information to decide on a listing price.  Even mortgage lenders have relied on Realtor CMA’s, in the form of Broker Price Opinions, to help decide on sale prices for short sales and bank owned homes.

Original published at https://dankrell.com/blog/2018/12/13/home-market-value/(opens in a new tab)

By Dan Krell. Copyright © 2018.

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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.

Home sale renovations

home sale renovations
Interior Home Sale Renovations (infographic from nar.realtor)

According to the National Association of Realtors (nar.realtor), the average time a homeowner stays in their home is ten years.  This is higher than the seven-year average prior to the great recession (but is less than the thirteen-year average immediately following the recession).  Needless to say, many homeowners are approaching (or have exceeded) their ten-year stint, and are likely selling their home during the spring and will likely be doing home sale renovations.

Any home sale preparation in today’s housing market should include some home sale renovations.  If you haven’t replaced the home’s systems (such as the roof or HVAC) while you lived in your home, there’s a good chance that they are approaching or have exceeded their average life expectancy.

Additionally, the décor and fixtures in your home are likely outdated.  The home sellers who make the mistake of not updating or renovating before they list inevitably face home inspection issues.  They ultimately find that the home takes longer to sell at a reduced price.

Let’s face it, remodeling can be expensive and overwhelming, especially when it’s for home sale renovations.  According to the NAR’s 2017 Remodeling Impact Report, about $340 billion was spent on remodeling projects in 2015.  Although a majority of homeowners would remodel their home themselves, thirty-five percent would prefer to move instead of remodeling their home.

The Report cited functionality and livability as the top reasons for home sale renovations.  It’s a no-brainer that home buyers prefer homes that are functional, comfortable, and sustainable.  Aesthetics is not enough for a home to be appealing to today’s home buyer, it has to fit their life style.  Additionally, home buyers want efficient systems in their new homes that can help save on utility costs.

Home sale renovations should focus on functionality and livability

What projects will get buyers who will pay top dollar into your home?  It should be no surprise that the number one interior project, listed by the 2017 Remodeling Impact Report, is a complete kitchen renovation.  Other essential interior projects include renovating bathrooms, installing new wood flooring, creating a new master suite, replacing the HVAC system, and finishing a basement or attic.

It also shouldn’t be a surprise that the Report listed replacing the roof as the top exterior project. Other exterior projects in high demand include new windows, new garage door, new siding, and installing a new front door.

If you want to add value to your home, even if it’s not for home sale renovations, check the 2018 Cost vs. Value report (costvsvalue.com).  The report can give you insight to which remodeling projects are the most popular, and estimates how much of the cost you can potentially reclaim when you sell your home.

There’s no doubt that renovating your home can be expensive.  Although the costs of home sale renovations can tempt you to cut corners, don’t.  Cutting corners on renovation projects can actually cost you more.  You may have to repair, or even re-do the project if not finished adequately.  Home buyers are savvy, and can spot low quality materials and poor workmanship.

Also, make sure to get permits when required.  If the home buyer doesn’t ask you, the home inspector will likely recommend that the home buyer check for permits.

Although many homeowners don’t mind a DIY project, many hire home improvement professionals.  When hiring home improvement professionals, check with the Maryland Home Improvement Commission (dllr.state.md.us/license/mhic) to ensure they are licensed contractors.  You should also ask for proof of their insurance, including Workman’s Comp insurance, in case there is an accident on your property while completing the project.

If you hire a contractor who will accept payment when the house sells, read your contract carefully and thoroughly. Do your due diligence.  There may be provisions in your contract that you may not be aware of, such as added costs, charging interest, and setting/lowering the sale price.

Original article is published at https://dankrell.com/blog/2018/11/17/home-sale-renovations

By Dan Krell. Copyright © 2018.

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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.