This is probably the most frequently asked question by an owner when considering selling their home, and rightfully so, because it’s the most important question that all others stem from. Besides, it’s the same question a Buyer will ask when deciding whether or not to choose your home over your competition. But who really knows? How is value accurately determined? How can I be sure that I’m not underselling my home? Is there a difference between value and current market value? Does assessed value mean anything? How much negotiating room, if any, do I need to build in? If I price my house too high to just “test” the market will it hurt me later on? There are many more questions, so as you can see it is not just as simple as picking a number.
The question of valuation is even more difficult and important given the current market conditions that have existed for the past 3 years and are projected to exist for many years to come. There are numerous opinions and advice seems to come from every direction. Unfortunately, even though well intentioned, much of the advice is misleading and only adds misinformation to an already difficult situation. Pricing and selling your home is very similar to other major life events, such as having and raising children. Once you decide to have kids it seems that everyone, from parents to casual acquaintances, knows how best to raise your children. The same is true once you decide to sell your home – everyone is too willing to give you their advice on how to best sell your home. If it were that easy there would be no need to involve a real estate professional.
We are not trying to say that you should never listen to friends or family (their input, if backed by experience and sound reason, can be very valuable). Rather you need to seek the advice of an experienced and competent full-time REALTOR® with a proven track record that will help guide you in pricing and ultimately selling your home. Ultimately only you can determine what is best for you and expert reliable advice is a crucial component in that determination. It is absolutely critical to price your property correctly from the beginning and the first step is to get a written and professional Comparative Market Analysis (CMA) from a qualified REALTOR®. If an agent cannot do this or says it cannot be done on your particular property then you need to find one that can.
The CMA is the first step in accurate pricing because it takes the most recent comparable sales (a minimum of 3 preferably within the last 3-4 months) and compares them to your home, helping to determine the adjusted market value. In most case it is best to use 4-6 comparable sales to help more accurately determine value and reduce the possibility of “manipulating” value by selecting only certain comparable to “justify” a certain value. Of course, it is hard enough to find 3 good comparable given the slow market - this is ok so long as comparables are not being “cherry picked.” The CMA alone is not enough to accurately price your home, it is critical to also look at your competition currently available as that is what will really dictate what you should price your home for. Value based solely on a CMA and historical data only gives a snapshot for that given moment, but what is currently on the market will be tomorrow’s comparables and are what best determine current market value. It is also critical to keep up with market activity, specifically properties in your home’s price range, to make sure your price is still competitive and that you are not “one-step” behind the market. An experienced and knowledgeable REALTOR® will help explain the difference between a CMA and a certified appraisal. If your Buyer has to obtain a loan then the bank will order a certified appraisal making correct pricing critical, otherwise the deal could fall-thru as a result of a low appraisal.
The other questions in the first paragraph also need to be addressed in relation to pricing. Again, an experienced and knowledgeable REALTOR® will help you answer these questions and navigate potential pitfalls, so you avoid making common mistakes that can end up costing you money. No one wants to “give” their house away, but it is important to be realistic realizing that the market and the numbers do not lie.
The following are excerpts taken from two articles in the December Real Estate News/Real Estate Trends addressing the very subject of pricing:
Three Quarters of Owners Continue to Overvalue
"Despite survey after survey showing that consumers expect home prices to continue to decline next year, most home owners still believe their houses are worth more than what their agents recommend."
"Nearly three out of four home owners, 76 percent, believe their homes are worth more than the recommended agent listing price. By contrast, 68 percent of home buyers believe homes are overpriced, according to the latest HomeGain. Thirty-two percent said homes are overpriced by more than 10 percent."
"“Home owners and real estate professionals appear to be in sync regarding the direction of home prices. Home buyers and sellers, however, continue to remain apart as to home valuations with the vast majority of home owners thinking their homes are worth more than their agents and the market are telling them,” said Louis Cammarosano, General Manager of HomeGain."
Today’s Market – An Agent’s Perspective
"With all the newspaper articles, television reports and Internet stories discussing how much real estate values have declined over the past several years, buyers in today’s market are unquestionably looking for a great deal. And with the surge in distressed properties, buyers are often looking at either a foreclosure—a property that has been taken back by the bank—or a short sale, where the amount owed on the mortgage is greater than the value of the property."
"Sellers (often encouraged by their agents) list their properties on the high side, figuring they can reduce the price in the future if they don’t get any offers. The problem with this strategy is that oftentimes the longer the property sits on the market, the more difficult it is to sell. Buyers might consider the property over-priced or think something is wrong with it since it hasn’t sold. And it’s often the case in real estate that the first offer is the best offer, a painful lesson for many sellers. It can be a long time before a seller attracts as good an offer as the first one, which they may come to regret rejecting or countering."
"When considering offers, sellers often rely on a CMA (Comparative Market Analysis), a BPO (Broker Price Opinion), an appraisal or comparables. It’s important to understand that a CMA, BPO or appraisal are one person’s opinion or estimate of value. In this volatile market, the value of a property is only one thing: what a qualified buyer is willing to pay for it...the bottom line is until distressed properties are a smaller part of all properties listed for sale, sellers will have to price properties to sell and may also need to be willing to offer incentives."