Ensuring your home sells at fair market value within a reasonable period of time is dependent on the pricing strategy. The single most important decision we will make together is assigning the most effective list price for your property. This is a price that is not too low or too high as compared to similar properties that have recently sold in the area, but a price that will attract as many buyers as possible. If the list price is too low, and multiple bids do not materialize or if these bids do not drive the price to its market value then you may leave money on the table.
Conversely, if the price is too high it can discourage buyers from making an offer. The most effective list price will encourage buyers to offer on your house because they are convinced it represents good value. Different properties require different pricing strategies. There are circumstances when a pricing strategy that works with one property would be ill advised with others. We will work together to create the ideal strategy for your home based on the following factors:
Determine Fair Market Value
Fair market value is the price a buyer is willing to pay for a home given its condition, recent comparable sales and listings, and the local real estate market.
Comparative Market Analysis
To calculate the fair market value of your home, we will prepare a Comparative Market Analysis (CMA) report summarizing properties in your area with similar square footage, construction, age and condition that have recently sold or are currently on the market. Recent comparable sales and listings are two of the most important factors impacting fair market value. Comparable listings that expired before they had a chance to sell also offer an indication of the fair market value of your property. Adjustments to your home’s valuation will also be made given its location (e.g. proximity to parks, waterfront, schools and transportation), floor plan, home improvements, amenities, parking, storage and other variables.
There are some extraordinary homes and estates that have few or no comparables. In these cases, preparing a CMA requires specialized expertise we will be pleased to provide. If your property falls into this category, please contact us to schedule a complimentary consultation.
Local Market Inventory and Trends
Other factors that may influence the fair market value of your home include whether it’s trending towards a buyers’ or sellers’ market, the number of similar homes on the market, interest rates and the overall lending climate, the average number of days similar properties are on the market, and whether similar properties are selling for above or below the asking price.
The real estate market is always changing. It helps to understand how market conditions can affect your position as a seller.
The supply of homes exceeds the number of buyers (supply is greater than demand). In this market, prices tend to drop and the homes stay on the market longer. Thus your home may take longer to sell and you will have less negotiating power in terms of the selling price. Fortunately, you will be in the driver’s seat when making an offer on your next home.
The number of buyers exceeds the number of homes on the market (demand greater than supply). In this market prices are increasing and homes sell quickly. As a seller, you will probably have more negotiating power and obtain a higher selling price for your property. Unfortunately, you will be on the other side of the fence when purchasing your next home.
The number of homes on the market is equal to the number of buyers (supply equals demand). In this market, prices are stable and homes sell within a reasonable period of time. It is a calm atmosphere with buyers having a satisfactory number of homes from which to choose.
Factors such as macro economic trends, property appraisals or tax assessments may have some influence on the fair market value of your home; however, more often than not, this influence may be limited or inconsequential. For example, the assessed value of your property for tax purposes may be significantly higher or lower than its value on the real estate market. This is because buyers and investors will evaluate the value of your home against recent comparable sales listings, not against property tax assessments.
One factor that has no influence on your property’s fair market value is the price you originally paid for your home. Even if you purchased your property recently, the local real estate market and the market value of your home may have dramatically changed.
Price Your Home
Determining your home’s listing price is one of the most critical decisions as discussed in your sales and marketing strategy, and will be done in consultation with us after all the factors have been considered. Your recommended listing price will take into consideration your home’s fair market value, adjustments for unique property attributes, neighbourhood market trends and appropriate pricing strategies given current market conditions. This may include:
• Pricing your home within the range of fair market value, slightly above actual sold prices of similar homes, but lower than the prices of comparable active listings.
• Pricing your home lower than fair market value in an attempt to incite a bidding war that results in a higher price.
The Risk of Overpricing
It is crucial not to overprice. If you overprice your home above its fair market value, potential buyers and real estate investors will compare it unfavourably against recent comparable sales and listings. The risk is that your property will linger on the market for longer than what is typical for similar listings, stigmatizing it as an undesirable or blatantly over-priced property as a result.
Many sellers believe that if they price their home high initially, they can lower it later. Often, when a home is priced too high, it experiences little activity. Gradually the price will come down to market value, but by that time it’s been for sale too long and some buyers will be wary and reject the property. On occasion, the price is dropped below the market value because the seller is running out of time. The property sells for less than it is worth. For these reasons it is so important not to overprice.
Missing the Right Buyer
You may think that interested buyers “can always make an offer,” but if the home is overpriced, potential buyers looking in a lower price range will never see it. Those who can afford a home at your asking price will soon recognize that they can get a better value elsewhere.
As soon as a home comes on the market, there is a flurry of activity surrounding it. This is a crucial time when real estate agents and potential buyers sit up and take notice. If the home is overpriced, it doesn’t take long for interested parties to lose interest. By the time the price drops, a majority of buyers are lost.
Analyzing each case individually and implementing the pricing strategy suitable for the property type is critical when trying to achieve the highest sale price. Equally important is the timing of the sale, the marketing plan, strong negotiation skills and the credibility of your agent. We execute our marketing plan with extreme precision and our track record is there to back our claim.
Now that you’ve mastered this step of the selling process, read about what still lies ahead in the next chapter on Marketing Plan Essentials.