How Should I Price My House?

How Should I Price My House?

This is the single most stressful question that home sellers and real estate agents grapple with when it comes time to list a house for sale. There is no easy answer or formula, but how this question is handled separates the men from the boys, so to speak. Experienced and financially savvy real estate agents know how to position the listing price to maximize profit while at the same limiting the time it takes to sell.

First, let’s look at each party’s motivations in a listing transactions:

Home Sellers

Home sellers usually enter the transaction wanting to sell their home for top dollar. Sometimes the priority of value is diminished if time is of the essence, such as when the sale is due to a work relocation or another urgent family situation. When I speak to potential clients, I try to focus their attention not on the top line sale price amount, but the bottom line net proceeds amount. There are ways to structure the transaction where a seller can receive more at the bottom line sooner, than if top line sales price is the focus.  I’ll describe those option later.

Real Estate Agent

The traditional real estate model provides the agent motivation to sell your house quickly, irregardless of price.  Because agents are overwhelmingly paid solely on commission, time to close is important when the effort usually starts during the initial consultations and followups before the house even hits the market, if at all.  In this area, $300k is an average sale price. A typical commission structure is 3%, which would be $9k to the listing agent.  Listing low and/or pushing the sellers to accept a $290k offer only changes the listing agent’s commission by $300. Since there is no guarantee that another offer will come, let alone a higher one, $300 seems like an excellent trade-off in order to guarantee getting paid. That doesn’t mean it’s right, it is actually against the REALTOR code of ethics to not hold the client’s interests higher than the agent’s.

Fundamentally, How To Price a Listing?

Pricing Chart - Round Rock Realtor

All competent agents know how to come up with a price based on local and recent comps (comparable, ie. size, style, age, condition). Although this is a good starting point, I dig a lot deeper to come up with a better listing price. First, one must remember that comps are in the past. Depending on how much activity is in your area, you try to go only 3 months back. But in a hot market like we have today, do you want to sell you house at the price it would have gone for 3 months ago, or what it’s worth today?

Second, your house is only worth what a buyer is willing to pay. In order for this axiom to work in the seller’s favor, the buyer must be aware of the value compared to other properties. Are your fixtures a higher quality, do you have a bigger yard, has your A/C unit been recently updated? Are there deficiencies, such as an oddly shaped dining room, that can be mitigated by staging it differently? Will a fresh coat of paint on not only the walls but also the trim make the home feel newer?

Third, realize that everyone wants to think they got a deal. Doesn’t matter if it’s on a new sweater, a car, or a house purchase. I typically price in $5-10k worth of deal-making budget into the price.  Many agents want to list the house with this discount already reflected in the list price. I’d rather market your home in a way that suggests it is worth every penny of list price but to make everyone happy we will knock a little off. In some areas were multiple offers are occurring, this isn’t necessary.

Seller Net Proceeds

As I mentioned in the beginning, the list price is only part of the equation. I tried to convince my clients that they should be more worried about the bottom line. How much money are they going to walk away with at closing to apply toward their new home after all closing costs and commissions are paid? One way that my clients can increase their net proceeds is by listing their home using my 2% listing fee option. A seller using this commission structure will have $3k more available to put down on the next house, which means $15k more buying power (20%), when they sell their $300k home. When the market is hot and homes are selling quickly, my 2% option means an easier transaction for me and more money in your pocket.

Good negotiation skills are also fundamental in getting the seller a better deal. It is amazing to me that some deals nearly fall apart because of a $5k separation in offers. I like to remind the buyer (through their agent) that $5k in sale price is only a $1k difference in down payment and roughly $19/mo change in principle and interest payment. Whereas, that $5k to the seller is effectively a $25k loss in buying power on the next property.

Let Me Help You Maximize Your Sale

With an engineering background and a MBA, I love digging into the numbers and coming up with the right strategy to get you the most out of the sale of your home. Contact me today and we can setup a time to go over how listing your home for sale works and how I’ll work for you to get you the most for your home.