I just read a similar article in Inman News (you need a subscription), so I decided to put my own spin on it. Pricing is one of the most important factors in getting a home sold. You'll hear location is #1, and that is also important, but homes sell all over - on busy streets, near train tracks, etc. They sold because they were priced correctly for their negative locations. Same goes for a home that needs a lot of work - if it's priced correctly for its current condition it will sell.
Setting Price Based on Active Listings vs. Sold Listings
I always have to remind sellers that appraisers put the appraised value based on listings that have already sold and closed within the last 3 months (preferred, although they will go back a bit farther if necessary). These listings are factual data, telling the appraiser how much buyers were willing to pay for a similar property. Anyone can ask whatever they want for a house, but that doesn't mean they'll get it.
Appraisers will look at Active listings and include them on their appraisal report, but those are mainly to show market trends based on those recent sold and closed listings. Do prices seem to be going up now or are they dropping? This will help an appraiser determine if homes that sold 3-6 months ago should have an uptick on value or if prices in the area are decreasing.
Thinking Certain Amenities Are Worth More Than They Really Are
Here are some examples:
1. I was on a listing appointment and the seller wanted a lot more than his home was worth. One of the reasons he believed his price was correct was because he felt the value of his paneling was at least $5,000. For one thing, that paneling was a deterrent, not an amenity that most people would even like. I know he didn't spend anywhere near $5,000 for this paneling, but in his mind it didn't matter - that old fashioned paneling made his house worth $5,000 more! I didn't take that listing because he was so unrealistic.
2. I had a beautiful townhouse for sale in Orland Park. The owner was bragging about her $5,000 (same figure again) custom draperies that she felt were sure to sell her townhome. They were very heavy and once again, old fashioned looking, but she loved them. She was a bit more motivated than the seller above since she had put money down on new construction, so she listened to me and we priced her townhouse where it had a chance to sell. It did sell but the first thing the new owner did was get rid of those heavy drapes! She hated them. In fact, my seller also felt her new white carpet was a selling feature, but the new owner even removed that.
What I try to tell sellers is that amenities don't always add actual value, but they might help a property sell quicker. However, that's only if those amenities are popular with buyers at the time. I never want to offend a seller by telling them that something they love is not going to be considered a selling feature, but I do want to be honest that it doesn't create additional worth to the property's value.
Trying to Recoup the Full Cost of Updates/Renovations
There was a show on HGTV about kitchen renovations. Real estate agents would visit a property where the sellers just updated the kitchen and they would come up with a percentage that the sellers could get back from the work they did. This was based on comparable listings in their neighborhood. Some owners spent too much money for their area and would be lucky to get 50% of what they spent on their remodel. Very rarely were any owners told they could get close to what the cost of the new kitchen was.
This is because buyers expect a home in any area that is priced at the top of the market should be updated. I just showed a home for sale in Orland Park that I feel is too high. It is spacious but at the current price it should be more updated and show better (there is a lot of clutter that is difficult for some buyers to "look beyond"). Bottom line is for the price this seller is asking, the kitchen and bathrooms at least should be updated. I have interested buyers because of the size and style of the home but they aren't offering anywhere near her asking price.
Sellers need to keep in mind that similar to other amenities, a remodel will not give them back everything they spent on it, even if it was just done. It will help them get top dollar, which is the top price the market (buyers) will currently handle. A sentence I really liked in the Inman News article was the fact that remodels will put a home in the top of their market range - but it won't put them in a completely different price range.
Download the most current Cost of Value Report for the Chicagoland area by clicking here.
Pricing Based on What a Seller Needs to Purchase Their Next Home
It doesn't matter what the proceeds you need from the sale of your home are. You will only get what your current market value is based on location and amenities/improvements. You have to think like a buyer. If you need $300,000 for your home in order to buy what you want, but other homes priced the same are bigger and/or otherwise better, why would a buyer choose your place? Another example would be if you were told your home is worth near $250,000, but you need $300,000, imagine how your home will compare with homes valued at $300,000 - it won't! That means those other homes will sell before yours ever does (until you price it correctly).
You need to have realistic expectations on what you can truly get for your home before you start looking at homes you won't be able to afford. Buyers and appraisers don't care what you need. They want to make sure your home is priced correctly so they can get a mortgage on it and that it will appraise out.
Relying on Online Home Values
This is rarely a seller situation since many online valuations, such as Zillow's Zestimate, are not usually in the seller's favor. We hear about these valuations mostly from buyers. I just showed an Orland Park home today where the buyer told me, for the 2nd or 3rd time, that the Zestimate valued the home more than $50,000 lower than the list price. I had to reiterate to my buyer that those values are wrong most of the time, and definitely in the case of this particular home (related living, which is difficult for an agent to value, and pretty much impossible for an online algorithm, computer generated value). I can create a CMA (Comparative Market Analysis) for both buyers and sellers so they know what similar properties actually sold for recently in the area. This is not a computer generated figure. However, if you'd like to try what I think is better than Zillow, click here to get a quick market activity report for your area.
Not Re-evaluating List Price
I've met many sellers who had their listings expire with one or more prior agents. I asked them why they hadn't taken any kind of price reduction during their prior listing period. I was surprised to hear that their agents never asked them to! There are different things that will help to make the decision that a price reduction is necessary:
1. Very few showings - you should average at least 1 showing a week, preferably more, if you're truly motivated to sell your home. If you're not getting that you need to start thinking of reducing your price.
2. 10-12 showings with no offer. If you have that many showings without an offer, then the "market" (buyers) is telling you that your property isn't worth making an offer on - at the current price. In other words, they are making offers on other homes that they feel are better investments - in that price range.
3. Depending on your motivation to sell, you should review your price every 3-6 weeks it is sitting on the market without an offer. When we sold our last home we reduced price very 3rd week without an offer. So we don't expect you to do anything we wouldn't do. A home without an offer in that time frame is an overpriced home and sellers need to face that reality if they want to get their house sold vs. just sitting up for sale.
Is It Always Just Price?
Although price is one of the most important factors of getting your home sold, you could make some changes to the property and stay at the current price. For instance, a messy, cluttered home that otherwise has good bones might be priced properly, but many buyers can't see beyond that mess. If it were cleaned up then it might look like it's well within the price range. I've been very lucky that most of my sellers have followed my suggestions on de-cluttering, cleaning and even staging (setting up furniture differently and storing or getting rid of certain items - this is something I offer to my sellers at no cost).
I had sellers with a house on a street with a couple negatives - it was right next door to a Junior High School on a dead end street. So every day during the school year there was traffic for the kids. Across the street was a row of apartments, and these were not nice newer buildings. When I walked into the home I noticed the big, heavy furniture (and too many pieces) in the living room with another full room in the adjoining family room. They had a newly remodeled kitchen with a small cluttered office next to it. I gave them a list of suggestions with the hope they'd do a couple things.
I was shocked when I came back and saw they did every single thing I mentioned. As you stepped inside the living room, it now looked large and inviting as did the family room. They couldn't believe how much nicer it looked with my suggestions. The office was neat and clean and now looked like a valuable extra space vs. a messy alcove. The best thing was that with the negative surroundings outside, the inside was so nice that we sold it in a couple of days! These were very happy sellers that have referred me to other clients. This cost them sweat equity and it got them top dollar in a short amount of time. That wouldn't have happened had they not made those changes.
Any home will sell if it's priced correctly for its current condition. And we can help you with pricing and staging to get you the top of your price range. Call The Judy Orr Team at 708-536-8200.