You only get one opportunity to make a good first impression and that includes asking the right price for your house. When you first offer your house for sale, everyone is eager to see it. This is when your house will generate the most interest. Overprice your palace and you will get to enjoy this pleasant process for many months to come.
Determining the right price is really a two-step process:
First, you have to find comparable houses; and
Second, set your price based on those comparables.
Factors That Affect the Right Price
There are no identical twins when it comes to houses; every house is unique. Following are some of the reasons why very similar houses may sell for very different prices.
Location - The old cliché that the three most important things in real estate are: Location, Location and Location - is more true than not. This is the one thing you cannot change about your property. Adding a spectacular new kitchen or Hollywood style bath may add value to your house, but it will not change its location. Included here are such things as community reputation, services, and quality of the local school system.
REMEMBER that your house's location is one of the reasons you bought it in the first place. If you paid a premium because of its lakefront view, you can probably expect to recoup that when you sell. If you were able to buy more house for your money because the location may not have been ideal, your buyer will be looking at your house for the very same reason.
Competition - The cliché here is "supply and demand", in this case, the "supply" part. If yours is one of many for sale, the supply may keep prices down or at least not allow them to rise to where they would be in a tight supply situation. If yours is the only house in your area that is for sale, the law of supply and demand takes over and you should be asking more.
If you have overpriced your house, you will then be in the unenviable position of selling everyone else's houses. Your overpriced house will make the others seem like a bargain.
Timing - Selling in a buyers' market probably translates to a lower price than selling in sellers' market or in an economy in which jobs are plentiful and people feel secure.
Interest Rates - Prices are also affected by mortgage interest rates. When rates are low, you can price your house a bit higher because the buyer's cost per month will be lower. As interest rates rise, increasing a buyer's cost per month, the price has to come down for the same buyer to be able to afford your house.
Condition - Make your house look as fresh and well maintained as possible. No one wants to pay top dollar for a place that shows poorly.
Finding Comparables
Check Out the Competition
Look at houses for sale in your area and comparable areas. Try to find houses on lots that are as much like yours as possible.
Go Surfing
You can do your own CMA (Comparable Market Analysis) by using the Internet. Many Internet services, such as www. smarthomebuy.com or www. zillow.com, provide comparables for most houses. A site we particularly like and find useful for finding comparables is www.trulia.com. Realtors are using it, why shouldn't you?
Scan Local Newspapers
They usually have more local real estate listings than the large metropolitan dailies and they often run stories about how much the average price for a house in your area has gone up or at least held its own in today's economy. This is good background information for your brochure if you go fsbo.
Call A Realtor
Why a realtor? Because realtors have instant access to all of the listings in your area and the expertise to assemble a reasonable CMA. Realtors also have access to the prices that houses in your area actually closed for. The nearer in time to today those closed, the more you can rely on the information.
Why would an agent help you if you are not going to use her or are planning to sell on your own? Agents will generally provide a CMA even if you're thinking of being a fsbo (for sale by owner), because they know the majority of for sale by owners will eventually turn their listing over to a realtor and they want to be that realtor you turn to first. Also, in a buyers' market, real estate agents have a saying, ?It is the second (or third) agent who actually gets the sale,? (they are the one's who get the seller to reduce the asking price.)
Setting the Asking Price
Let us say that the average asking price of your comparables is $300,000. If the average real estate agent's commission in your area is 6%, (commission rates are generally negotiable and vary in different parts of the country), that is $18,000 in gross commissions, if you use an agent and the buyer does also. As the seller, you would get $282,000 less any fees and costs you are responsible for.
If you are going to try to sell your house as a for sale by owner, we recommend you cooperate with agents as this will greatly increase the probability of successfully selling your house in the shortest amount of time. You will also have the added benefit of dealing with someone who knows what she is doing. The rate of this cooperation for the buyer's half of the commission is negotiable, but should be between 2 and 3%. One half of the 6% in our example or 3% of $300,000 = $9,000.
Your initial offering price should allow for the possibility that your buyer will be represented by an agent. Therefore, take the $300,000 and subtract $9,000 from it or $291,000. Setting your initial asking price under $300,000, in order to attract prospects, and above the $291,000 in order to cover any possible commissions is what we would recommend if you go fsbo.
An initial asking price of $296,900 would satisfy the twin objectives of pricing: Bringing in buyers and maximizing your money, while leaving room to pay a buyer's agent's commission, if necessary.
© 2007 Complete Books Publishing, Inc.
