Pricing real estate can be a complicated part of selling any property. If the price is set too low, then the seller will lose valuable profitability when the property is purchased. If the price is too high, then prospective buyers might not make an offer and may not even decide to view the property in the first place. The key is pricing the property just right, which can be a very subjective thing to do, depending on many factors.
Sellers are sometimes not involved in setting the price of their home and instead leave the decision completely up to their listing agents. Meanwhile, other sellers are far too involved, often making demands that go against the better judgment of their real estate representatives. Other sellers fall into the middle category, taking some role in the pricing process, while still relying heavily on the expert guidance provided by their real estate agent.
All three approaches to pricing can work out perfectly, when all things align for the best, but the first 2 options can also be disastrous, when the circumstances of the price point set do not adequately reflect the value and demand for the property.
This focused essay discusses the pricing strategy for saleable real estate. We will explain some best practices when pricing your home for sale and caution of the common pitfalls of the pricing process.
Sellers Pricing Real Estate
When sellers make the final determination on the price that they will offer their home for sale on the open market, anything can happen. Some sellers are incredibly educated and know exactly where they need to be in order to sell for top dollar and with minimal time on the market.
However, most sellers are far too emotionally-attached to their homes, or the money that they have chosen to invest in their homes, and lose objectivity when setting their listing price. These sellers usually price far too high, minimizing the appeal of the home on the marketplace from day one and eventually have to reduce the price far below what it could have sold for had it been priced correctly from the beginning.
Remember, the value of your home is different to buyers than it is to you. You can not take into account the things you love about your home, unless they will be universally loved and willing to be paid for by buyers. Likewise, you can not take into account the sentimentality you feel for your property, since buyers will not embrace these same sentiments.
It is for this reason that I usually caution buyers to do lots of research and talk to several real estate professionals to get an accurate determination of your home’s worth before even considering listing it with a specific agent.
Listing Agent Pricing Property
Some sellers simply hire a real estate agent and leave everything up to them. This can work great when the agent is an ethical professional who will think realistically and place the wellbeing of their client above all else. Unfortunately, this attitude is not universally embraced and some real estate agents have their own best interests in mind.
Agents may try to price the property too high in order to please a seller. This is a common practice among rookie agents and often backfires when the seller must sit by while the home stagnates on the market and eventually sells at a much lower price. Initial joy at the prospects of a high price point become terrible disappointment at a lowball offer, often hesitantly accepted out of desperation.
Agents might also make things easy on themselves and offer the home for substantially less than the market could bear. This practice is common with successful high-volume agents who will gladly accept a slightly lower commission to get the property sold fast. As long as this practice is explained to the seller, there are no ethical problems here. However, if the agent represents that value of the property lower than it actually is, just to close a deal quickly, there are some serious moral and legal issues at stake.
Pricing Real Estate Strategies and Compromises
I generally recommend that property sellers should educate themselves, as detailed above, before listing their home for sale. Check out your competition. See what comparable homes are being listed for and what they are actually selling for. All this information is usually available in your local neighborhood newspaper or online.
Talk to several different real estate companies and get some advice from a few listing agents. This is also a great step towards selecting the best agent for your specific needs.
Once you decide to hire an agent, discuss the pricing plan with them in detail before signing a contract. Have them make recommendations and then compare their thoughts with your own ideas on the subject of home pricing. If there are differences and discrepancies, have them justify their logic on pricing in order to find common ground. If you do not like the way this process is handled, do not sign a listing contract with them. Instead, give another real estate professional a try.
Alternately, if you are one of the brave few who decide to sell their own homes, be sure to read my for-sale-by-owner staging essay and be doubly sure that you are fully knowledgeable about the current market conditions, sale trends and home values or your marketing efforts will almost surely end badly.
In the end, pricing any piece of property comes down to supply and demand. The key is recognizing both factors in advance of pricing the home initially and trying to hit that sweet spot that creates a win/win situation for all involved.