Set the price

D - Pricing Considerations: What should you be aware of?

Obviously there are many factors that play into setting an asking price; how hot (or how cold) is the current market, what's the forecast, recent selling prices and current asking prices, etc. Let's look at some considerations before zeroing in on the best pricing recommendation. 

Realtors and appraisers depend on comparisons:

They rely heavily on similar homes in the area that have recently sold to determine a home's probable selling price. It's that simple.

If your house was built within the last 30 years (especially 20 years), it will probably be relatively easy to find comparisons. For years, most subdivisions were constructed with just a few models. The homes there are typically very similar in value with a limited number of models and have a tighter selling range that makes it easy to find valid comparisons.

As subdivisions age, upgrades, additions and a multitude of changes (inside and out) work to differentiate one house from another. Older homes were often built on a custom basis within a neighborhood and require a seasoned pro to help set a price. 

Average annual increase:

Experienced agents also rely on the average annual increase to estimate a current value when comparison homes are hard to find (think log cabin). For instance, if prices increased 3% one year, 7% the next and then 4%, simple addition gives you a rough appreciation increase of 14% over these three years.

This is a valid way for a ballpark valuation covering a short time period. However, one must be careful here. There are a lot of factors – improvements, condition, and market trends–that can distort “average” increases.

How price can influence selection (if you're listed):

Once you decide on the basic price range your home should be in, here are some techniques to consider that could help you get more showings if your home is listed. The following list represents homes that were printed from the MLS (Multiple Listing Service). Buyers wanted to see homes priced from $220,000 to $250,000. Only the prices are show below in order to illustrate the point. Glance through the prices.

1. 220,000
2. 224,900
3. 226,369
4. 229,900
5. 229,900
6. 232,840
7. 234,900
8. 239,900
9. 239,900
10. 240,000
11. 248,900
12. 249,900
13. 249,900
14. 249,900
15. 249,900
16. 249,900
17. 249,900

Homes numbered 1 and 10 are attempting to pick up buyers by setting on a price point that could represent the high or low price range of a buyer. The seller with the $220,000 priced home accomplished that.

Note how 3 and 6 are both very odd prices. Builders do that. It gives the appearance of an exact price derived from careful cost calculations.

If the buyer's agent knows his clients favor new construction, homes 3 and 6 may make the cut. However, number 6 is a four-year-old house. The savvy listing agent recommended this price to the sellers of number 6 since it gives the appearance of being a builder's new house and possibly generate more showings.

A lot of homes are usually clustered under a key price point, like here at just under $250,000. But notice number 11. By having the house priced a thousand dollars lower, this "price" separates itself from the crowd at $249,900. When the buyers’ agent is setting up showings, the less expensive homes are shown first. This helps number 11 make the cut if all the homes can't be shown due to time constraints or a buy decision is made before the highest priced homes are shown. 

A computer search can influence an asking price: 

Agents specify a buyer's price range when searching for homes on the computer (like $220,000 to $250,000 or $350,000 to $400,000) when they create a list of houses for the buyers to see.

Therefore, it's important to note that houses priced right on an even $10,000 number like $270,000 will be on the list for buyers that specify that amount (like $270,000 to $300,000) as the low end of homes they wish to view.

And that house will also be included on a list for other buyers who specify $270,000 as the maximum priced home they want to see, such as $240,000 to $270,000 homes.

When selling by owner (or listed):

Set the price just slightly higher than it's value–to create a realistic and attractive asking price. This allows a little room for negotiating, but also creates a chance for a full priced offer.

The closer you are to the actual value with your asking price, the more you'll look attractive to the buyers touring your home.

In a depressed market, you may want to set your price almost right on value, as price becomes the dominant issue among buyers.

The art of setting a price is not rocket science. It can be a best guess estimate that comes through knowledge of the local market. Don’t be afraid to spend a lot of time determining your price; it is often the most important criteria for getting an offer.

                       Agents may skew a price recommendation

A huge mistake owners make is to go with the agent recommending the highest asking price. Agents are known to recommend an inflated price, since they'll look good in the eyes of the owner. Those agents are said to be "buying" the listing.

Go with your choice of agents but use the price that makes sense, one that can be supported by logic and recent comparisons of home sales, not the price that makes you smile.