If you're not a realtor yourself, it can be difficult to browse the market and understand how various homes arrive at their list prices. We regularly hear buyers say that homes are over or underpriced, but did you know that that may be a strategy instead of a mistake? From a buyer's perspective, the list price can indicate quite a bit about the negotiations forthcoming. Landing on your list price should be more involved than what you think your house should sell for. We will guide you through all that and more today, including why the Zestimate isn't completely accurate.
Pricing For Profitability
Profitability really is our greatest goal for you when you sell your home, which is why pricing is so important. I always tell my clients that pricing your home correctly is absolutely one of the most important decisions that you can make in this entire home selling process. I heard it said once early on in my career, and I've seen it to be true time and time again that one hundred percent of the time when a house doesn't sell, it's because it was overpriced. You've got to understand the buyer psychology behind that. The longer that things stay on the market, the more you question what's wrong with the house instead of just seeing that they're overpriced. So I always tell buyers it's one thing or the other, either there's something drastically wrong or it's overpriced, or more likely it's both of those things. With that being said you’ve got to go into house hunting with an open mind.
Not Simply Apple to Oranges
We think about the phrase apples to oranges; we don't want apples to oranges. What we're talking about is pricing your home in the correct price bracket, and an apple is a different bracket than an orange. We want the correct bracket of buyers walking through your house. We don't want the wrong bracket of people that are not interested in your house, because they're comparing it to houses that are more expensive due to them being nicer homes.
An easy example of that is just to use round numbers. If your house is actually worth $500,000 you price it at $600,000. Chances are, anyone whose budget is $500,000 is not looking at a $600,000 price point and vice versa, because both before expect different things from that property. We have to be firmly rooted in the data looking at relevant properties, but they also really need to know their market well, know the dynamics that are at play for you, and a good agent is going to guide you through this.
Lower Price Equals More Competition
One thing that is obvious to us, but I think is not so obvious to a lot of consumers, is that there is a direct correlation between price and the amount of days that you are in the market. If something is a steal, there's a reason that it goes like in the first hour, right? That could be due to market dynamics, but regardless of demand there’s going to be more competition if the price is lower. That's simply the law of numbers. When things are priced less, there are more buyers for it.
Arriving at the Correct Price
Now let's chat about how we arrive at the correct price for your house! Obviously, you're going to be handheld with your experienced agent for this, but we can talk about some of the high level points of what we walk through as agents. The first thing that we're always going to look at is what we call relevant properties. The house right next door to yours might not be relevant if yours has a much larger floor plan, so we want to find the things that we think are the most relevant. We're going to look at build quality, location, school district, pools, and desirable features. For example your house would be worth more if it backed up to a park versus a parking lot. Those are the kinds of things we’re looking at when pricing your home and you want to make sure you're actually looking at things that buyers would consider.
Secondly, when looking at those relevant properties we want to look at them from a historical viewpoint, while making sure we are still competing in today's market. We are looking to see what is your direct competition, the other inventory active on the market, and buyer’s options. How does your home line up to the rest of your neighborhood. If there's three houses right next to each other in the same neighborhood, and they're all priced the same, we’re trying to figure out which one would be the best, which one would sell the best. Sometimes that can mean that it's a premium like only one home comes on the market every few months, so maybe people are really looking to get in. We might be able to price it at a premium, and the inverse is true. Maybe someone priced it really low and the house just sold in your neighborhood for much lower than you would have sold it for. We always encourage your neighbors to have a good agent because what those homes sell for is definitely going to be looked at by the buyer and other sellers in the future.
Factoring in Timeline and Motivation
Big factors in how people price their homes are timeline and motivation; this can go from both sides, both the seller and the buyer when we're looking at this. Usually we're looking at it from the seller's perspective. We’re asking if you’re in a rush, because if not we can wait it out a little to get this premium price. For example, we might be able to wait a few weeks if you can allow that in your schedule or maybe you fell in love with a house this weekend and we got an under contract and Monday morning, you need to get that house sold. Those are going to end up in different, different sides of the envelope of reason, right of pricing, low versus high to to get it done really quickly or to have some patience and try to get a premium price from the buyer's side.
A lot of times waiting isn't going to get you more money, which is really interesting if you go deep into the data. If everything in your market is selling in seven days or less and you've been on the market three weeks, they assume your house is a lemon. On top of that most people don't jump to thinking that the home was simply overpriced. You just need to think things through with your agent, “What do we think is going to max our profits in this market if you price it spot on or even a little bit low? People fall in love, they get emotionally attached and they bid each other up, right?” That's the strategy that we are currently deploying most often.
The New Build Difference
New construction neighborhoods can be a little bit tricky because the builders are still building and there's not a lot of houses resale homes for sale because all of the surrounding homes were built in the past two years. We’re not supposed to compare those for pricing. Plus, it's a completely different buyer! If we have an established home around new builds in construction then we price on the higher end knowing that what we offer over new construction is move-in-ready right away. Of course knowing the market and the factors playing out is our job.
The Reality of Zestimates
The elephant in the room is how does the Zestimate factors into pricing. We hear so many agents complaining about this estimate, but in reality it's helpful to see a number of what you think your home is worth and we understand why you love the Zestimate. However we need you to understand that the Zestimate is not the Bible, there are a lot of things to factor into that, and it is not going to be accurate at the end of the day. Hopefully, it gives you a good ballpark and I think it should; however Texas is a non-disclosure state. Where we are, when it comes to home prices, you are not obliged to disclose what you bought or sold your home for. Meaning Zillow doesn't have access to that sold data. In fact, no one but those who have access to the MLS actually have the data on what a home sold for.
At the end of the day it's only a ballpark and we need to know a whole lot more information than that when it comes to pricing. Zillow has no idea how well you've maintained your home or how incredibly you've updated and improved your home. It doesn't factor in whether the home is on a busy street or not. It just doesn't know any of that! Not to mention, the pictures don't tell the whole story. A house may look beautiful in pictures, but then you may go to see it and realize it’s nothing like what you thought it looked like. Those pictures won’t show if the house smells like cats, ugly features, or give you an accurate representation of the lighting in the space. Pictures do magic there in terms of lighting and making sure that things are nice and bright.
Getting the Most Out of Your Investment
There's just a lot more to price than first meets the eye and there should be to make sure you get the most out of your investment. Your agent should be your key resource and they should be looking at all of these and bringing it to you so that you understand where you're headed with that pricing strategy. We want to make sure that as an agent, as a client, we have a good relationship, and we're candidly talking about everything we discussed today so you can get the most profit. If you have further questions about pricing your home or would like us to run an initial analysis on what it might sell for please reach out — we are always happy to help!
Until Next Time,
Brianna & Keelie