Published October 04, 2012
It may seem logical that if you price your home low, it will sell quickly. Some real estate agents believe everyone should price low. The truth is, there are a lot of things to consider when pricing a home. And it helps sellers and buyers to understand clearly the factors that typically influence the asking and the actual selling price.
It’s not an exact science
There’s no exact science to pricing a home to sell. When working with a potential seller, the best an agent can do is provide them with a “range” of value. The range is based on timing, the competition and the most recent comparable sales (or “comps”).
2 similar homes, 2 different prices
Unlike the local grocery store or big-box retailer, which set product prices based on such factors as inventory and past sales of the same product, every seller and every home is unique. In most cases, the seller has only one home to sell. Ultimately, the seller, who may or may not be as experienced as their agent or an active buyer in their local market, sets the selling price. So you could have two similar homes on the same block, yet there’s a 10 percent price difference between them.
In Daly City, CA, not long ago, two single-family homes of similar designs and layout, and in a prime neighborhood, went on the market around the same time. Separately, the sellers’ agents suggested that the value range of their homes was between $425,000 and $450,000. At that time, the market was strong, and inventory was low.
Seller A chose to list his home at $489,000, hoping a buyer would negotiate him down to a figure in the high end of the range. Seller B listed her home at $425,000, wanting a quick sale. She received multiple offers and sold her home quickly — at the top end of the range. Six weeks later, Seller A’s property was sitting on the market … no offers.
The herd mentality
Why such different outcomes for essentially the same house? Answer: The herd mentality.
Buyers tend to flock to where other buyers are hovering. If three people seem serious about a property, then it must be a good value, location or both. Other potential buyers will likely become interested, too. In fact, the home will seem so desirable, or such a good value, to them that they’ll compete for it, ultimately paying the top of the value range — or higher.
On the other hand, if they go to the open house of the overpriced home and don’t see anyone there, they’ll think there’s something missing — or wrong. They don’t want to be the only one at the party. They move on to another property or make a low offer, because they appear to be the only interested party.
Advice for sellers
The example of Seller B, who priced low and yet got top dollar, may seem to suggest that pricing low is indeed the way to go. But not so fast.
For one thing, it’s not a good idea to market your home at a price you aren’t willing to take. And in slower markets, it may make more sense to price at the higher end of the range so you don’t leave money on the table. Is your home on a busy street, in a bad school district? Probably not worth the risk to price it low.
The point is, every seller and situation is different. You can’t simply assume that in a strong market, if you price your home low, you’ll receive multiple offers and it will sell for more than what you asked. The important thing is to work with an experienced local agent and to understand that, ultimately, the market will take the sale price where it needs to go.
Advice for buyers
If you’ve been in the market awhile, you likely have a good feel for values. If a price seems high, but there are still tons of people circling around, don’t be afraid to go in with a full-price offer or even under asking. There have been hundreds of examples where it seems like there were going to be multiple offers. Then, on the “offer day” (the day the listing agent sets to review all offers), the seller gets zero bids. Or one offer comes in at the list price.
Look at overpriced homes that aren’t getting any action. Some homes have languished on the market for six months with no offers. Then the seller makes a major price reduction and receives four offers, and the place ends up selling for more than the original list price. You want to be the one who makes an offer before the reduction.
Ultimately, look at the comps, talk to your agent, trust your gut and go in with your strongest, cleanest offer.
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Brendon DeSimone is a Realtor & HGTV real estate expert. He has collaborated on multiple real estate books and his expert advice is regularly sought out by print, online and television media outlets like FOX News, CNBC and Forbes. An avid investor, Brendon owns real estate around the US and abroad and is licensed to sell in two states. You can find Brendon online or follow him on Twitter.