home pricing Archives - Real Estate News and Commentary

December 21, 2022December 21, 2022

Selling to a real estate investor

Needless to say, real estate investing has become popular again. Selling to a real estate investor was even embraced by tech companies that are called “iBuyers.” To get your attention, real estate investors post road signs, send direct mail, and inundate social media with a promise of getting cash for your home. But real estate investors are not all the same, and their intentions are not always fair: which begs the question “Should you sell your home directly to a real estate investor?”

Selling to a real estate investor

When most people think of a real estate investor, they think of someone who will renovate and resale the home. This is commonly called “flipping.” However, another type of flipping has become popular, where the investor, also known as a “wholesaler,” flips their purchase contract to another buyer (usually at a huge profit for them). Also, there are investors who buy and then keep the property to rent.

What’s the catch?

The typical lure from the real estate investor is a quick sale. Although many can close quickly, others not so much. The reality is that real estate investors offer the quick sale in lieu of a huge reduction in their sale price. After all, they never promised you top dollar. The truth remains that real estate investors pay a fraction of what you can likely sell your home on the MLS (and the irony is that the MLS buyer is likely to be to an investor).

What about the promise of cash? Although investors offer cash for your home, you won’t literally be getting cash at settlement. Rather, just like any real estate transaction, you’ll either get a check from the title company or a wire to your bank.

Many real estate investors tout “no Realtor fees.” Sounds good, right? Not so fast. Many real estate investors charge premiums and/or miscellaneous fees. Some make you pay their closing costs. In truth, your unexpected fees can exceed the average agent commission.

Real estate investors also promise “no contingencies.” However, many investors use a “study period” in lieu of specific contingencies for various reasons, including obtaining the funds to close. Wholesalers use the study period to find a “buyer” (usually another investor) for their contract (you may not have assurance that the assigned buyer has the ability to complete the purchase).

Due diligence

Before you sell directly to the real estate investor, consider your goals with the pros and cons. Due diligence on your part will help you obtain your goals. Don’t be afraid to approach a local real estate agent to understand the value of your home. Compare an investor sale to the MLS sale (which is typically getting your money a few weeks sooner for a fraction of the value). You should consult with an attorney to review the purchase contract to ensure you understand what you’re signing.

By Dan Krell
Copyright © 2022

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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.

December 20, 2020December 13, 2022

Price is Everything

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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February 14, 2020February 14, 2020

About Your List Price

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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October 15, 2019October 15, 2019

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

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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June 5, 2018November 23, 2021

Home pricing psychology

Pricing your home correctly is the foundation of a successful sale. I have often talked about the science and art of pricing a home in various market conditions, but did you know home pricing psychology also plays a role?

With vast amounts of public data available on the internet, you may be tempted to price your home on your own. However, keep in mind that unverified internet data can be inaccurate or outdated. Moreover, the most recent sales data may not yet be available on your favorite real estate sites. Asking a Realtor to help you analyze relevant comparables from the MLS can help you decide on a sales price that is in line with home buying trends.

The science of pricing a home is a straight forward method of analyzing the sale prices of similar neighborhood homes. The analysis will provide you with a potential sales price range. When selecting comparable homes, make sure that the homes are similar in style (colonial, split level, rambler, etc.). Select comparable homes that are similar in size (usually within 15 to 20 percent of your home’s living area). Also, try to find comparable sales that sold within the last six months to be relevant to current market trends.

The “art” of pricing your home is a process of fine tuning the sale price range derived from comparable homes. Looking at various factors for each home, you can make adjustments on your calculated sale price range. Interior differences, such as number of bedrooms, bathrooms, or having a finished basement, can change a sale price significantly. Likewise, exterior features, such as a deck or fence, can also affect the price.

Let’s talk about your home’s condition. Whether you like it or not, your home’s condition should be a major factor in determining a sale price. You should be honest and objective when it comes to your home’s condition. Have others offer their opinions about necessary updates and repairs. Are there any comparables that are in similar condition? You may have to make adjustments to correspond to deferred maintenance and lack of updates.

Home Pricing Psychology

To attract home buyers while trying to get top dollar, you may also have to apply home pricing psychology. Of course, many of these home pricing psychology strategies are not sound or based on facts. An example of this is the use of a “totem” price. A totem price is when the second half of the number is a mirror of the first (e.g., 543,345). This was a strategy that was highly touted during the “go-go” market of 2005-2006.

Until recently, there hasn’t been much research into the psychological effects of real estate pricing strategies. An empirical study by Eli Beracha and Michael J. Seiler revealed how sellers can ask for a higher price without turning off buyers (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). Their study revealed that “just-below” pricing can help you sell your home faster and get a higher price. Just-below pricing is a strategy that lowers the price by reducing the left most digit by “1.” However, they suggest that when using the just-below strategy in real estate, it should be rounded to the nearest hundred or thousand. For example, if you decide on a list price of $450,000, then the rounded-just-below price will be $449,900.

Original published at https://dankrell.com/blog/2018/06/05/home-pricing-psychology/

By Dan Krell
Copyright © 2018.

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