May 2012 Blogs

7 Factors of the ‘Just-Right’ List Price

A famous little blonde girl of fairy-tale lore made it look like child’s play to master the art of finding the ‘just-right’ solution to her various lifestyle challenges (e.g., finding a bowl of porridge, a chair and a bed that suited her fancy).

In the real-life world of real estate, though, it is much more difficult to find the ‘just-right’ price at which to list your home. There are loads of moving pieces, competing priorities and voices to be sorted through, internal and external. Sellers, if you work from a definition of the ‘just-right’ price for your home as the one at which it will sell without lagging, then it is possible - necessary, actually - to stop the chaos and start sorting and selecting the inputs that will get you there.

Here’s a short(ish) list of those factors:

1.  The Comps.  If pricing a home was about puttin g your heart’s deepest desire on some universal wish list, the world would be a very different place, my friends. But it’s not. And the first step to buying your ticket out of fantasy-land and into the realm of the price that will get your home sold is to narrow down the range of realistic pricing by looking at ‘the comps.’ ‘Comps’ is just industry shorthand for sales data on similar homes near yours which were recently listed and/or sold (“comparable” listings and sales).

Ask your agent to provide you with your home’s comps; also, check them out by searching your address and general area for homes similar to yours, here on Trulia. While you should view the actual sales prices (vs. list prices) of comps that have recently closed escrow as very informative and influential for your pricing decision, the list prices of homes that are lagging on the market can also help educate you about what price points buyers in your area see as too high.

2.  DOM [Days on Market].  The MLS data your agent will provide with the comps and the listings you find here online should also contain information about how long the various listings in your market have been on the market. You can use this information - or your agent do the math for you - to get a gauge on what the average DOM, or Days on Market, is in your neighborhood.

This empowers you to look at the comps with more nuance and to use them more strategically to influence your own pricing decision; you will ideally want to price your home in line with properties that went pending and/or sold in a time frame at or shorter than the average time homes in your area stay on the market. The homes that have lingered on much longer than that may be overpriced and may even require a list price reduction to sell; and that’s a club you don’t want to join.

3.  List price vs. sale price.  Here, LP stands for ‘list price’ and ‘SP’ stands for ‘sale price or ‘sold price.’ This comparison - sometimes expressed in a ratio, other times in terms of how many percentage points the sale price was over or under the asking price - gets at the difference, if any, between what sellers are asking for homes in your area vs. what buyers in your area are willing and able to pay. When homes are selling for more than the asking price as a pattern or average, this usually suggests that your market is more of a seller’s market or that multiple offers are commonplace. And the opposite is true - when homes typically sell for less than the list price, it indicates that buyers may have superior negotiating power.

Work with your agent to do the math and to understand its implications for your own pricing decisions, as they are not always completely obvious. For example, your agent might be able to point out patterns you don’t automatically see, like the increasingly common one in which well-staged, vacant homes that are listed at a slight discount are the ones that typically sell for significantly over asking.

4.  Competition Level.  How many homes are competing with yours for the hearts, minds and wallets of qualified buyers? How has the number of competing homes on the market trended over time, recently? Many areas are reporting a massive decline in competition - less supply is good for sellers, but you need to know what’s going on in your area; don’t try to apply national headlines to your local, personal real estate decisions.

As you work to understand competition levels and their impact on your pricing, here’s what not to do:

  Don’t just look up and down the street, or in your subdivision - also look at similar homes in nearby neighborhoods or even nearby towns that a buyer who likes what your home might also target.

  And don’t just look at quantity - look at the quality, or nature of the competing listings. Is the competition mostly comprised of ‘regular’ equity sales, short sales or foreclosures/REOs? If you’re a regular sale in a sea of foreclosures, your price competition might be steep, but there may be other advantages of your listing that can offset that, to a degree.

So, what should you do? Get your agent to help you understand the competition level and the trends in number of listings on the market in recent months. Then, crash some of the competing listings’ Open Houses to scope out their condition and collect the rest of the intel listed here, before factoring it into your pricing decisions.

5.  Timing.  If your neighborhood’s award-winning school district or abundant colleges drive much of the buyer demand, you might be able to ask or get more for your home in June than in October, once the school year is in full swing. If you live where it snows, listing it while it’s easy for buyers to get around might pay off, literally. There are a number of area-specific timing considerations that you may need to calculate into setting your just-right list price. Chances are good that you know what they are where you live, but your agent may have some novel insight on the matter, as well.

6.  Motivation Levels.  How motivated are you? Are you just testing out the market to see if you can hit a target number, or do you need to have escrow closed by a particular date to make your life and job plans run smoothly? What is your primary motivation? Price, timing, closure, making sure your home passes into caring hands or just getting rid of a home or a mortgage that no longer serves you?

And how motivated are buyers in your area? From insights like:

  Average number of days on market
  Average list price vs. sale price
  Trends in comparable sales - their number and sales prices
  Trends in interest rates
  Trends in competition levels
  And insights like where you are in the seasonal changes that impact buyers in your area,

you can work with your listing agent to gauge whether buyers are so motivated that they will not be deterred by a premium list price, or whether you’ll need to use a discount or value-based price to churn up motivation in a market of fence-sitting buyers.

7.  Agent and Market Feedback.  So, you came up with a list price that you thought was ‘just-right,’ but you’ve had little or no Open House traffic or private showings. Or you got lots of showings, but no offers - or nothing but lowballs, anyway. It’s not too late to get to the ‘just-right’ list price for your home; in fact, time is of the essence if you want to take advantage of the swelling levels of buyer interest and activity that has sprung this Spring.

In many scenarios where a home lags on the market, the list price was set or maintained against the express advice of the listing agent, who urged the seller to list it lower. Or maybe you and your agent agreed on pricing early on, but they’ve been asking you for a price reduction for months now. If you trust your listing agent, and they have a strong background for getting homes in your area sold on today’s market, then it behooves you to at least take their pricing advice seriously, whether or not you follow it to the letter.

If you need more data before you make the understandably scary move of cutting your list price, ask your agent to ask for feedback from the brokers and agents who have shown the property or attended Open Houses - or even to run the property past their own colleagues at their office or marketing meetings. Once you have this input - listen to it and factor it in, along with the other factors.

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