 TIP #7
Price, Price,
Price
This Tip of the Week is our longest so
far, and rightly so, since it concerns one of the
two most critical factors in a successful sale (the
other being exposure).
We'll look at
The dangers of over-pricing
Maybe we're high, but we can always negotiate
down or drop our price later . . .
NOT! Assuming you're serious about selling, you risk
losing a lot of money if you don't price your
property correctly right from the beginning:
- you will not get many chances to
negotiate: why would serious buyers offer on
your property when other suitable homes are
going for less?
- if someone does come with an offer, it's likely
to be substantially lower than your asking
price, setting up needless emotional roadblocks
to a deal
- even if you should find a buyer willing to pay
more than market value, you risk tying up the
property for weeks and then having the sale
fall apart when the bank appraisal required by
high-ratio financing (ie., involving less than
25% down) fails to support the sale price
- as time goes by and your high price continues to
help sell other properties in the
area, yours acquires an "unsold" stigma that
may eventually force you to settle for
less than market value
- by now you're totally fed-up with having
to maintain "show-home" readiness for people
who don't appreciate your over-priced castle;
you may even be up against a deadline
for the purchase of your next home
- so you end up listing at a realistic price
anyway - but this time with a realtor: you've
lost not only a lot of time and the
"above-market" surplus you'd been holding out
for, but also the realtor's commission, which
may represent a substantial portion of the
equity you've painfuly accumulated over years of
mortgage payments. Aaarrghhhhhhhhh!
Wouldn't it have been better to make your property
competitive from the start, get an early
sale, pocket some or all of the commission and get
on with your life?
How NOT to set your price
How do you determine a competitive asking price, then?
First, in working out what value the market is
likely to place on your property, realize that
certain factors simply don't apply: the market
value of your property has NOTHING to do
with:
- what you've put into it
- what you need to get out of it
- how much you've enjoyed living in it
- your reason for moving
- whether you've already reduced the price
- how much time you've got to sell
- what Ethel and George sold for on
the other side of town last spring
- that nervous young realtor's guess during his
first visit
- what the competition is asking for
similar properties
Market value is an estimate of your property's
likely worth to an informed buyer, based on the
recent selling prices of similar properties.
Determining market
value
The definition just given indicates how market value
is determined: by recognizing what RECENT sales have
brought sellers of properties that are SIMILAR to
your own in location,
age, size, style, number of bedrooms and baths, and
amenities. There are several ways you can proceed.
- You can invite three or four realtors to provide
a comparitive market evaluation. (Let them know
that you do NOT intend to list at the present
time, and try to determine if they are
reputable and successful - hungry beginners
might provide an inflated estimate;
unscrupulous ones might actually try to
sabotage your efforts.) While you're at it, ask
them how long homes in your area are currently
taking to sell, and what the current spread is
between asking and selling prices.
- You can try to borrow from a realtor the most
recent sales catalogs (as opposed to listings
catalogs), then do your own comparitive
evaluation (see below).
- You could spend a little money (currently
$175-225 here in Halifax - check your Yellow
Pages) and have a professional appraiser
provide an independent estimate.
Given that asking price is the most critical
determinant of a successful sale, the last
approach has a lot to recommend it:
- you get a totally unbiased estimate of
value, a powerful negotiating tool, and
possibly even an aid in speeding up your
buyer's mortgage application;
- the cost of the appraisal is minimal
compared to the commission you save
upon selling, and if (heaven forbid!)
you end up listing, you have a benchmark
by which to judge competing realtors'
sales pitches (and could no doubt recoup
the cost of the appraisal as a reduction
in the winning candidate's fee).
The comparitive
evaluation
The comparitive evaluation essentially involves
starting with recent selling prices of
several properties similar to your own, then
adjusting those prices upwards or downwards
according to whether they reflect features (square
footage, garage size, extra bathrooms, basement
development, age, special financing and so on) that
are inferior or superior, respectively, to your
own property's. (Ask a friendly realtor or appraiser
for advice on what values to attach to various
features like a fireplace, double vs. single garage,
or extra square footage of a given quality and age.)
So, for example, you make the following adjustments if
one of the recently-sold comparables, measured
against yours, had
- a second fireplace (subtract its sale value)
- a smaller garage (add the value of the difference)
- a new roof (subtract the value of the difference)
- no fence (add the sale value of your fence)
Get the picture? By adding and subtracting for specific
differences, then summing up all the changes, you
calculate what the comparable property would have
sold for if it had been exactly like your
place.
So long as the adjustments for a given property don't
exceed 10% of its sale price, you've got a useful
comparable. Adjusted selling prices for several such
properties, falling within a fairly narrow range
(discard the ones that don't), indicate what
your property should fetch.
Sharing the
commission
Will you have to share the commission with the
purchaser? The short answer is PROBABLY.
The next question is HOW MUCH?
Consider two identical properties, side by side, same
asking price, but one being sold privately, the other
through a realtor. As a buyer, which one would YOU
offer on? Maybe the one for sale by owner -
but only if you thought you could get it for
less. Otherwise, why forego the realtor's services
in negotiating, helping with financing, and handling
closing details?
You can expect to keep the realtor's commission to the
extent that you are prepared to do the realtor's
job. That means pricing your property
realistically, providing the widest possible
exposure, acquiring the know-how to handle the selling
side of your transaction, and also helping your
buyers move ahead with their side of the deal.
BINGO! That's where PrivateList comes in. Get
your color photos
on-line, advertise in the local
classifieds, use a professional
sign, mine our
sellers section for the
information you need, and refer interested prospects
to our buyers section,
where they can discover what they need to
know.
Room for
negotiating
What do you want: absolutely the most money for your
property, an early sale, or both? None of these will
affect the market value of your property, but they
will suggest how small or large a "negotiating
cushion" you add to that figure.
So will the state of your competition. Check the
classifieds, then visit all the homes, similar to
your own, that are currently for sale (or
subsequently enter the fray) in your area. Take your
notebook and get their vital statistics,
including, of course, asking price (but be leery of
a static price on a property that has remained
unsold for a long time - the sellers may not be
serious).
Then, when you get
home, adjust for minor differences between those
properties and your own, just as you did in your
comparitive evaluation (above), and you should get a
pretty good idea of your ranking in the local
competition - something you have to assume most
buyers will also be quite aware of!
One thing to keep in mind in setting your asking price:
buyers naturally set themselves limits on the range
of asking prices they'll investigate, and that range
is often expressed in increments of $5000. The
search utilities used by online classifieds also set
ranges to the nearest $5 or $10 thousand. Therefore,
you should favor, if possible, a price like
$149,900 rather than $150,500 - the second figure,
though only $600 higher than the first, may well
place your property just outside the price that
several qualified buyers have set for their online
or offline search.
In the end, it's just a question of whether you want to
finish the race first and get on with your life, or
go for top dollar by looking for a special buyer. It's
your choice - if you want immediate attention, your
saved commission may let you advertise below
the market and still end up with a greater net than
if you'd listed with a realtor.
Holding out is also a valid option - so long as you have a
true market-value benchmark for reference, a
clear deadline for reconsidering your price, and a
realistic idea of the risks. That means accepting
the fact that you are in a competition. As
your worthier rivals sell, others will take
their place. Ignore that reality, and your friendly
neighborhood realtor may end up with the prize that
should have been yours.
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