Pricing Is (Almost) Everything

Happy family by Quinn Dombrowski

SCENARIO #1: Travis and George have been living in their downtown home for 10 years and want to move up north. The surrounding homes have been commanding huge prices and Travis and George expect the same, even though their home has only two bedrooms and no parking.

SCENARIO #2: Kathleen and Spero have a son who’s about to graduate from high school. He wants to go to university in another province, and Kathleen and Spero need their home to sell for more than market value so they can send him away to school with the profits.

SCENARIO #3: Daniel and Johanna bought their home in the midst of a Seller’s market, outbidding four other buyers to do so. Recent indicators suggest their home hasn’t appreciated because the market has changed, but Daniel and Johanna insist on getting more than what they paid for it.

SCENARIO #4: After a long and happy life, Elizabeth has willed her home of 50 years to her grown children. Though the home has fallen into disrepair, her inheritors are not willing to put any money into improving the house; they wish to sell it for top dollar and split the proceeds immediately.

These are some common scenarios I encounter when my clients wish to sell their homes. Though my team can still help all of these people with realistic advice and cutting edge market exposure, what is the common thread here? They all insist on achieving a certain price for their home. Sounds reasonable, but such a rigid attitude will probably, in the long run, actually cost them a lot of time and money. It’s normal, of course, to think your home is worth a lot and to want to get the best possible price for it. You may have put a lot of work into it, the neighbourhood might be excellent, and you may hope buyers will fall in love with the whole package and be willing to spend top dollar for it.

Some Realtors will buy into your wishes whether your pricing goals are achievable or not. They’ll go into your home and suggest a price, then quickly adjust this figure when they find out what you feel it’s worth. They will sign a listing agreement with you and put your home on the market for your goal price, knowing full well that the market won’t bear that price. They will let your home sit on the market, hoping you will agree to lower the price in the future or accept a low-ball offer out of desperation, hoping for any chance to get commission on an eventual sale even though that’s not in your best interests.

I won’t do that. It helps the competition, not you!

The market sets the price, not wishful thinking or any other factors. It’s a simple law of supply and demand. Here are all the things that, believe it or not, have no actual impact on market value:

• How much you need to purchase your next home
• How much you paid
• How much you spent on improvements (we consider the improvements themselves and how much value they bring, not the dollar value you’re trying to recoup)
• The value of a similar home in a different community
• The cost to build the same home today

My job is to help you set a realistic price to match market conditions so your home sells quickly for the best possible price. Where my expertise comes in, is in the comprehensive analysis of what comparable/similar/competitive homes have historically sold for in your neighbourhood, weighing that with your home’s unique features. This process is known as a Comparative Market Analysis and it’s generally considered the most effective method of determining what potential buyers will be willing to pay for your home.

The CMA is divided into three categories:

1. Similar properties that have recently SOLD: By studying these, we can see what homeowners have actually received over the last few months.

1. Similar properties that have currently been LISTED: These properties show exactly what alternatives a serious buyer has to choose from – your competition in the market.

1. EXPIRED LISTINGS could be as a result of overpricing or other factors like location, layout, poor marketing etc.

By carefully studying the comparable property locations, features and terms, we can develop a clear picture of the potential market for your property. This is a similar process that banks and lending institutions use in determining how much they will be willing to lend you for your home.

In addition to the CMA, I will help you develop a competitive price based on other key factors. Even if there aren’t exact comparables for your home, I’ll add or subtract for variables such as the following:

• Location
• Size
• Style
• Condition
• Community amenities
• Financing options (for instance, can we offer a Vendor Take Back mortgage?)
• Market conditions (Is it a buyer’s or a seller’s market?)

Why is listing your property at market value so essential? Why can’t you just start with a higher price, won’t that give you ‘wiggle room’ to negotiate? Why not start with a ridiculously low price, won’t that generate a feeding frenzy of offers? I’ve seen both strategies fail time and time again because:

People don’t bother looking at over-priced homes, or under-priced ones either! Most buyers working with Realtors receive property listings from their Realtor via email. Their Realtor is only searching for them within the parameters of their needs. If the buyer’s budget for a home is $500,000, they are likely looking at homes priced from $450,000-$550,000, not $300,000 homes or $700,000 homes.

Your home will lose its “marketability” after sitting too long on the market. Even though there may be nothing wrong with your home other than an unrealistic price, it will eventually develop a stigma. Buyers will forget all about the overpriced home they saw way back when; Realtors searching on behalf of new clients will see the DOM (days on market) and wonder what is wrong with the property and why it hasn’t sold. They’ll probably dig deeper, look at the previous selling price(s) and comparables, and may not be willing to present your home enthusiastically to their clients if they feel it’s not worth it.

Offers are higher when a property is closer to market value. First of all, you’re getting buyers in the door who are educated and will know that your home offers good value based on what else is out there. Buyers don’t like feeling ripped off, but they’re willing to pay a little extra for what they see as being fair. You will attract more interest on your home if it’s priced right and those buyers will probably bring their best offers if they really want your home.