For most people, their home is their most valuable asset, so it follows that buying a home and selling a home will be two of the most important investment decisions they will ever make. As you approach selling a home in today's market, how can you be sure of squeezing the most out of this valuable asset?
While your real estate agent can help you determine your property's value, it is important that you formulate your own individual pricing strategy. That will tell you how aggressive to be in setting the original price, and how flexible to be once the process starts.
One way to formulate a pricing strategy is to start with the general big picture, and work your way down to the specifics of your home and its appeal in today's market. The following are some of the highlights you should cover when pricing a home.
Recent Trends in Home Prices
According to the S&P/Case-Shiller Home Price Indices, the recovery in housing prices is continuing, but at a slower pace than it had been. Over the past year, home prices nationally have gained an average of 5.1 percent, which means the market is healthy but not exactly booming.
What this means for your pricing strategy: Since values are rising, be sure the price you set is based on very up-to-date information, so you don't underprice your home. At the same time, recognize that this is not a repeat of the housing boom from ten years ago, so don't expect buyers to pay over market.
As always, housing markets vary greatly from region to region, and from neighborhood to neighborhood. Local trends in home prices reflect this. Across 20 major markets tracked by the S&P/Case-Shiller Home Price Indices, price increases over the past year range from a low of 0.8 percent in Cleveland to a high of 10.5 percent in Miami.
What this means for your pricing strategy: Get a feel for how the market in your area is evolving. Don't just look at current prices in the neighborhood when you set your price, but take a look at what sales were like a year ago so you can get a feel for how hot -- or not -- your local market is.
Taking Stock of Housing Inventory
Another way to assess any market is on a supply-and-demand basis. Rising prices currently suggest that demand is coming back, but that demand can easily be overwhelmed by a glut of supply in some areas. The local inventory of comparable houses to sell will have a lot to do with how easy or hard it will be to sell your property, regardless of what price comparisons tell you.
What this means for your pricing strategy: Take a look at how many comparable properties there are for sale in your neighborhood, and how long they've been on the market. This will tell you how competitive your price will have to be in order for you to attract the flow of potential buyers viewing properties.
Time vs. Money
Your sense of urgency should impact your pricing strategy. If you are in a situation where you need a quick sale, you may want to post a price that represents a clear bargain relative to comparable properties. On the other hand, if you are in no particular hurry, you can afford to sit back and wait for the right buyer to come to you, to some extent.
What this means for your pricing strategy: Look at the average time it is taking similar properties to sell in your neighborhood. If you need a sale to go through more quickly than that -- for example, if you are about to close on another house and don't want to be saddled with two mortgages -- you should set your price a little lower than recent comparisons would indicate. On the other hand, if you can wait longer than the typical turnover time, and you don't mind the process of having your house for sale, you can set your price a little higher than the market would indicate.
How Much Do You Invest In Order to Sell?
What this means for your pricing strategy: If your real estate agent suggests an upgrade you are not sure about, ask this question: how much would you list the house for without this upgrade, and how much would you list it for with it? If the difference in those prices does not exceed the amount you would have to spend -- plus some allowance for the time involved -- you may not want to make the investment.
Deciding What Concessions to Make
Things can get a little heated when buyers start making demands. These might come in the form of a straight price concession, or they might be other requests. For example, a buyer might ask you to leave all the curtains, or perhaps to replace an old stove. Don't get mad, get calculating -- decide whether the deal meets your needs after all concessions are included.
What this means for your pricing strategy: When you set your publicly posted price, set a private one as well - what is the minimum you would accept for this house? Keep this private -- don't even share it with your real estate agent. If requests are made that don't have to do directly with price, figure out their economic value -- what would it cost you to replace those curtains, or upgrade that stove? Subtract that value from the offer price, and see if the remainder meets your minimum price. This makes it a simple yes or no calculation, and not something you need to agonize over.
To be sure, there are a lot of steps to this process, but that's a good thing. Going step by step will reinforce the fact that this is an investment decision, not an emotional one. Understanding that is the best way of improving the return on your investment.