Need to know how to set your list price? Market value and pricing strategies are decided by these four factors: location, comps, condition and updates. —-
When you decide to sell your house, one of your first questions is probably — how much can I sell my house for? If you’re like most home sellers, you probably plan on buying another home with the proceeds. Or, maybe you want to make a profit and use that cash for retirement.
Your home’s estimated worth sets the list price. It’s extremely important to get the list price right from the first day your home goes on the market. Megan Toll is a top agent in Philadelphia, Pennsylvania, who works with 67% more single family homes in her area than the average agent. She says that, “The most important factor of getting that list price right is [to get] the most visibility to the right buyers the first time around.”
Buyers commonly narrow their search based on price parameters, and if you price outside their budget they won’t even see your home until you’ve had to reduce the price to fall into their range, Toll explains. By that point, they’ll see that it’s been sitting on the market and wonder if it has any flaws.
A good starting point to see what your home might be worth is with HomeLight’s Home Value Estimator. This online tool uses information from multiple sources to create a real-time home value estimate based on current market trends. While it can give you an initial idea of how your home’s value might have increased since you originally purchased it, it’s a good idea to meet with an experienced top agent to get the full picture.
When you work with your agent to set the list price they’ll draw on their experience, market statistics, and the tips we explain in this post to help you get it right the first time.
How to set your home’s list price – 5 factors that matter most
What is a “list price?” The list price is the price you offer your home for sale when you first put it on the market. It’s the dollar figure on your listing the first day it hits the real estate industry’s Multiple Listing Service (MLS) and is available to buyers.
It’s not the price you might eventually sell for, nor is it the tax assessed value. It’s the final price that you and your agent land on after considering the following factors: location, comparable sales, condition, and improvements.
1. Consider your home’s location
Can you walk to a top-rated elementary school? Is crime in your area low, and do you have easy access to public transportation? Factors like these can have a big impact on your home’s value.
Beyond your neighborhood, where you live in that neighborhood matters. Toll explains that, “Location also factors into: are they on a busy corner, on a double yellow line road, or in a neighborhood with the best plot?”
Location also plays a role in determining which comparable sales — also called comps — your agent will pull. Toll says that, “When we’re analyzing a listing price for a home we look at properties that are in a similar location, within a half mile to a mile radius.”
2. The prices of recently sold homes
When you first meet with your agent they’ll likely bring a comparative market analysis (CMA). This document analyzes recently closed sales in your market and compares them to your home to determine a list price. Even if you think your home is worth more, pay attention to this data.
Michael J. Okun is an agent in Los Angeles, California, who completes 22% more sales than the average agent in his area. He warns sellers that while they may think that there’s a buyer out there that’s going to pay way over market value, “that just doesn’t exist. Even if a buyer falls in love with the home, they’re still going to be looking at the comps. No buyer wants to overpay.”
When you accept an offer and the buyer’s mortgage lender has your home appraised they’ll typically use these comparable sales, too. Tom Cullen is a licensed and certified real estate appraiser with over 30 years of experience. He says that, “We look for sales that have occurred most recently, proximate and similar to the home that you have.”
If you receive and accept an offer that’s much higher than comparable sales, your home might not appraise accordingly. If the buyer can’t get a mortgage on the house, they could back out of the sale.
3. Factor in house condition
Is your home well maintained or a fixer-upper?
“Is it something that has been completely renovated from top to bottom or is it still in the original condition that the sellers purchased the home in 20 years ago?” asks Toll. An updated home in top condition will fetch more on the market than a home with a bathroom from the 1970s because the buyers won’t have to factor in any remodeling costs.
According to Toll, “Buyers are very knowledgeable when they’re looking at a property. When they walk through they know that if they’re updating a kitchen it’s going to cost between $40,000 to $60,000.”
Your home’s condition has such a major impact on its value that some buyers will pay up to $15,000 more for a well-maintained home. It’s still possible to sell a home that needs some work, but you have to factor that into your list price and profit expectations.
If you’re selling a house with significant issues that you do not want to repair or update, consider listing it “as is.” Your agent can provide the pros and cons of an “as is” sale.
Appraisers also look at your home’s condition, age, and needed repairs when determining its value. They will make the same calculations as a buyer when adding in a remodeled kitchen or subtracting value for an outdated bathroom.
Source: (Collateral Analytics)
4. Add up improvements and updates
If you’ve added square footage, remodeled the kitchen, and updated the bathrooms, you can add that to your home’s value. But don’t think that if you paid $45,000 for a new kitchen you can just tack that onto the list price.
According to Okun, “It’s not a mathematical equation. It’s not what you bought the home for plus the money you’ve put into it and then it’s worth that. Certain renovations and remodeling projects have a better return on investment.”
In its 2019 Remodeling Impact Report, the National Association of Realtors® (NAR) found that the majority of remodeling projects that buyers want only offer a return of between 40-83%. The projects that return the most value — adding insulation to an attic returns 83% versus a kitchen remodel at 59% — aren’t necessarily what you’d think. Your agent will know what buyers in your market currently value and which of your updates increase the list price.
5. Determine the market conditions in your area
Depending on the market you’re selling in, your agent may advise a different listing price strategy. There are three types of real estate markets: a buyer’s market, a seller’s market, and a neutral market.
In a buyer’s market there are more homes on the market than buyers. Sellers might have to drop their list price to attract interest. It’s more common to have to make concessions, such as paying part of closing costs, to get the deal done.
It’s the opposite in a seller’s market — there are more buyers than homes. Bidding wars, buyers who waive contingencies, and homes that go for higher than list price are common.
In a neutral market, the supply of houses is balanced with the buyer demand.
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Tools to help hit a home list price bullseye
Once you understand the five factors that go into setting the best list price, how do you apply them to your house? These tools can help.
Work with a top real estate agent
For many people, their home is their most important financial asset. Find an agent who knows the local territory and trends, and who can go beyond an online home value estimator when setting list price.
Toll explains that sellers should take the value on a website with a grain of salt. “They might say your home is worth $500,00 because it’s in the right neighborhood. But they don’t know that your kitchen is from 1970, you have two outdated bathrooms, and the heater is old — factors the listing agent is going to take into consideration when pricing a home,” she says. An online home value estimator won’t know good selling points, either, like ocean views.
To find a great agent in your area, try the HomeLight Agent Match tool. It analyzes data on an agent’s past sales to match you with an agent who sells homes faster and for more money than other agents in your area.
Get a Competitive Market Analysis
Data drives a comparative market analysis or CMA. Your agent’s gut may tell them what your home can sell for, but a CMA will back it up.
Your agent takes all recent sales and compares them to your home — the number of rooms, square footage, and bathrooms. They may look at old listing photos to see if any updates were done on the house, and will add or subtract value to your home based on your updates. While not a formal appraisal, a CMA can often land quite close to the home’s appraised value.
Discuss a pre-listing appraisal with your agent
A pre-listing appraisal is an option if you’re really struggling with setting list price. It can be hard to find comps for unusual properties, such as a rural property with acreage, or one with a business in an outbuilding. With a pre-listing appraisal, you hire an independent appraiser to value your property just as if they were performing the appraisal for the bank.
You could set your list price off the pre-listing appraisal knowing that it’s likely the bank’s appraiser will determine a similar value.
Listing price tips, tricks and secrets
These tips and tricks will help you land on the best listing price for your house.
Price a bit low rather than high
In a seller’s market, using a lower end price can encourage multiple bids and trigger a “herd” or “auction/bidding” mentality, which can drive up the price.
Know the online search pricing cut-off
Buyers shop in price ranges, for example, up to $350,000. Pricing at $352,000 could cost you a sale if a buyer never sees your home. Price to match a real estate search.
Watch current market activity
Are homes in your area priced similarly but going for less? You might need to adjust accordingly.
Switch main listing photo if you update your price
That way, the listing attracts new attention. Buyers who skipped over the old pic might click through the new one.
Use the real estate industry’s “99” strategy
There’s a psychological aspect to pricing, and pricing a home at $499,000 can help it sell faster than pricing at $500,000.
Don’t get weird or creative with a funky combination of digits ($477,7777)
Getting cute or quirky with the price just raises questions, and not in a good way. Keep the focus on your house, not on the sellers who priced it strangely.
Never say “asking” price because it implies you don’t expect to get it
The language you use can subtly influence buyers. You’re not asking for that price, it’s the list price.
Top mistakes to avoid when setting list price
You’ve got a lot riding on your home sale — how quickly you can move, how much money you have to put into your next house, and your happiness with where you live — so avoid these top three mistakes when setting list price.
Overpricing your home
Underpricing or overpricing your home is a risky gamble.
Grossly underpriced properties in a hot market says that the seller is angling for an all out bidding war. That may scare potential buyers away. In a buyer’s market, pricing low could attract more attention. But if you go way too low, buyers may suspect that your home has major maintenance problems or other issues.
Overpricing is a bad idea in a seller’s market, too. As Okun tells his clients, “We as the seller set the list price, but the market determines the value. If a home is overpriced, it doesn’t take longer to sell, it just won’t sell until it gets to the right price.”
Like Goldlilocks’ porridge, you want your house priced just right. Most buyers have a timeframe to buy — whether they’re trying to get in a new house before the school year starts or in time to enjoy the holidays in their new home. Cullen points out that, “A property priced too high will sit for an extended period of time with little to no activity, and you may miss your window of opportunity to sell.”
Getting emotionally attached
The root of the overpricing problem often lies in the fact that you — like most homeowners — love your home. When you’re emotionally attached, it’s easy to forget that pricing your home to sell is a business decision, not a personal one.
Even if you love that nook in the spare bedroom where your daughter curled up to read, buyers may see an oddly-shaped room with unusable space. When you decide to sell, try to remove your emotions from the equation. Look at your home through the eyes of an impartial buyer. When your agent points out something a buyer could view negatively, take a deep breath and try to listen.
Remodeling too close to the sale date
Because you likely won’t get a dollar-for-dollar return when you list your home, most experts advise homeowners to remodel a few years before they plan to list. That way, you have time to enjoy the new kitchen or master suite.
If you think that updates would increase your list price, talk to an experienced agent before you call a contractor. According to Peter Clark, who ranks in the top 3% of 5,347 agents in the Portland, Oregon area, he asks potential sellers to weigh the remodeling investment carefully.
“We look at what we’re competing against in that price range to determine where we fall short. If statistics say the home is worth $425,000, but the seller wants $450,000, the discussion is, ‘Well, we can get $450,000 but you’re going to have to spend $35,000 [on upgrades] to get that extra $25,000. Is that something you want to do?’”
Markets can also shift in unexpected ways. Before the pandemic, a home office was a “nice to have” but not a major selling point. Now it’s at the top of many buyers’ lists. A top agent will know what the market currently values and if a few small tweaks, or even staging an extra bedroom as a home office, could bump your asking price.
How to tell when your home price is right
You’ve listed your home for sale and now you’re nervous — did you price it right? Here’s how to tell.
There’s lots of buyer interest
Did your agent’s phone start ringing the moment the house hit the MLS? Do you have several showings scheduled for the first weekend, or over the first week after listing? You probably priced it right.
Your list price matches comparables
Search for your listing online and look at the other homes the website pulls up. Do they all look comparable to yours? Similar age, size, and in the same neighborhood? If your 1,200 square foot ranch home appears in a list of 5,000 square feet McMansion’s, you might have a problem.
You receive an offer within a few days (months for cooler markets)
In a really hot market, you could get an offer within hours to a day. In a more balanced market, it could take a few weeks. But if your home has been sitting there for months with no legitimate offers, consider dropping your list price.
So how exactly do you determine the right price? Ask your agent. But there’s no need to leave the entire pricing process up to the agent. It’s always a good idea to get informed before agreeing to a list price.
Well informed sellers research nearby home values, gather their financial and mortgage data, or check their homes’ estimated value online. With the assistance of a top-notch agent and the reassurance of your own home value research, you’ll soon be ready to set the right list price for your home.
–Shared with love by the Valmy Team– your Texas realtor team. We would love to earn your trust and partnership, www.TheValmyTeam.com. All content copyright by the original authors.