Pricing a home in a buyer's market.

Things sure have changed. A couple years ago, a broker could miss pricing a home by 5%-10% and the market would rise to the price within a 6 month listing contract. Of course, if they priced it at value they would receive more than one offer. It was one of those you-really-couldn’t-screw-it-up markets. Here’s the basic ideas that I’ve found to help guide my pricing and sell homes faster than the market average.

1. Think like a buyer. What do the majority of buyers want? That’s the question you need to ask yourself. Be realistic. If the house you’re competing against has a remodeled kitchen and you don’t, you better have an ace up your sleeve somewhere else in the house. A buyer will buy the best house they find for the money within their price range. Most buyers look for homes within 25% price range. If your home isn’t the best home for the money, don’t expect it to sell. You can either improve the house or lower the price.

2. Comparable home sales have never meant much. All that comparable homes sales exist for is to make people (buyers, lenders, etc..) comfortable with the idea that they’re not paying too much or accepting too low of an offer (sellers). Right now, the only thing comparable sales might suggest for pricing is the approximate price range a home may sell in and justifying the final sales price. Actually getting offers for your home is something completely different.

3. Your current active competition is your best guide. Take a look at the competition. The competition is on the market but hasn’t sold. That says a lot. Theoretically, if your home was exactly the same as the other homes on the market, you can expect similar results. Pricing above or at the competition won’t sell the home any faster than the time they’ve been on the market. If your home is comparable to the active home that’s been on the market for 200 days at the price you’re thinking of listing at, don’t waste your time at that price. It won’t sell.

So what is your competition? Some homes in your price range aren’t competition and some are. That’s where experience comes in. A broker/agent needs to be out looking at the competition if they want to sell the listing. For me, I put myself in the mindset of a buyer and rank the competition in my mind based on which one the majority of buyers would find most appealing. I then price my home to fit in with what was observed. Make the price spread enough that differences between the property are properly justified in the buyer’s mind. Sometimes this lets you actually push the price up and sometimes you’re a little lower than some comps. Just remember though, the buyers have probably never saw the comparable sales on the inside so they really don’t matter.

4. Brokers/Agents – Don’t take an overpriced listing. If you can’t price well against the competition for whatever reason, you may want to think twice about taking the listing. Sellers have the right to hold out for whatever price they want. There’s always the chance somebody who hasn’t seen the competition would buy the home and pay more than what the majority of buyers would pay. I try to determine the probability of selling at a price. I won’t take a listing with a 50/50 chance of selling. It’s up to you as a broker to decide if it’s going to be a waste of time or not. The seller knows he can find somebody out there to list their home at their price. For me, I’m running a business, not a public service.

My rule is I take a listing if it’s within my farm area and not more than 10% higher than what I feel the value is. This usually depends a lot on how flexible on price I feel the seller will be if the time comes to adjust the price. It’s not too strict of a pricing rule just because of the benefits that come from having listings in your farm. If it’s outside my farm, I only take the listing within 5% of my target price. In the Denver area, MLS statistics suggest you won’t even get an offer unless you’re within 5% of value and the average listing that sells original list price is within 10% of the final sales price. Incidentally, there is still a spread of about 20% between the average active list price and the average sold price for the current month.

Pricing within the 5% rule helps me sell most homes in about 1/3 the time of the current market average. If my sellers want to ‘test’ the market at a slightly higher price, I used to take the listings, but I’m getting away from that. It’s hurts to spend thousands on listings that don’t sell. I find that most sellers always think of the price drop as money lost. In reality, their home was never worth the higher price. But in the end, you always seem to hit a wall on price that’s above what the home is worth even though they might have been agreeable to pricing it correctly if you helped them to be realistic upfront. In the end it’s rarely worth taking an overpriced listing.