The Realities of Real Estate: Pricing a critical step in today's market

When selling your house, establishing a price is probably one of the most important, yet difficult things to do.

One way or the other, $10- or $20 thousand is real money. It's not like trying to decide how much you want for the old exercise machine you're selling at a Saturday yard sale.

This is your house; you've put a lot of blood, sweat and tears in making this place a home. You remember fixing this, that and the other thing; you've got more than just money invested in this place and you've worked hard on making it just right. So, when you're ready to sell, how do you put a price on all of that?

First, there are a few things that have nothing to do with the value of your house. The hard part of this is that they're usually things that can mean a lot to you, but in reality they may not contribute to the value of your home.

Even as real estate agents, we fall into the same trap. We look at our house and say, "Gee, our house is much better than the guy down the street who wants an absurd amount of money for his place."

Some, but not all, of what's irrelevant in the market value of your house, includes the following:

The assessed value - The tax man has put a number on your house for tax purposes. This doesn't mean that's what your house is worth at any given time. Assessments are done in three year cycles, and they are a blanket determination of what homes in your area might be worth. Especially in today's market, that number is a backward looking estimate that could be entirely wrong.

The amount owed on the mortgage - The market value of your house has nothing to do with how much you owe on it. For many people, this can be a tough nut to swallow. Wishing that your house will sell for more than you owe won't make it so. The reality is that "solds" in your neighborhood will play a predominate role in setting your price.

What my neighbor says - The guy next door is obviously on your side. After all, if your house sells for a big number, it makes him happy to know his is probably worth a lot, too. Also, neighborhood talk is notoriously inaccurate. Time and time again, we've had people tell us that so-and-so's house sold for "this," but after we look it up in the public record, the real number is often different.

The price of the house you want to buy - Many times, people want to determine the sales price of their house based on how much money they need to buy the next place. It's not an irrational thought; they're just trying to get a handle on the whole trip. But, the person buying your house doesn't really care about where you're moving to next.

What I paid for my house - We all want to make a profit on our real estate investment. But, the value of your house really has nothing to do with what you paid. Current market conditions dictate market value. If you paid $30 a share last year for Microsoft, and it's now selling for $23, that's how it is. The market value of your house is no different. Things are only worth what someone is willing to pay for them.

So, what should you consider when putting a price on your house? Overwhelmingly, the sales price of homes similar to yours is a good place to start. When an agent says "Let's look at the comps," that's what they're talking about. What homes have sold for in your area is a pretty good indicator of the market value for yours. But, market value might not necessarily be the same number you select for your list price. Those numbers can be different, depending on whether you're in a buyer's or a seller's market. Today, we're obviously in a buyer's market, meaning that supply exceeds demand.

A few years ago, we had a seller's market. In that situation, there were more buyers than sellers.

As a result, you might price your house close to the market value, in hopes that competing buyers would bid up the price, and you could actually get more than the list price of your home. That was a reasonable strategy in that type of market.

Now that we're in a buyer's market, the way you price your home will be a little bit different.

In this market, sellers should be aware that buyer's are almost certain to offer you less than the list price. Consequently, sellers may need to build in some negotiating room.

Nevertheless, there's a fine line between making some "negotiating room" and pricing yourself out of the market. One of the most frequent and serious mistakes we see in the selling of a house is going onto the market with a price that's way too high. If your price is simply out of the ballpark, you can do some serious damage in your ability to maximize the home's ultimate sales price.

What usually happens to an overpriced house is that no one even comes to see it, and it just lingers on the market. Plus, no amount of advertising or marketing wizardry is going to get a buyer interested in a house that's unreasonably priced. Once the days on the market begin to pile up, the house becomes "stigmatized."

Buyers and agents alike begin to assume that there must be something wrong with the house. In reality, the only problem may be the price. Even after the seller begins to price reduce the home, it's often too late. The house has been tagged as overpriced, and in the end, sellers usually take less for the house than they may have gotten if it were properly priced out of the gate.

Another important consideration in pricing your house is what's called "price points." When a Realtor searches the multiple listing system for a property, they'll specify a price range. The same is true for a buyer who's looking for houses on Realtor.com, or some other Web site.

If the buyer wants to spend something around $450,000, an agent will probably search all the homes in the $400,000 to $500,000 range. But, if you put your house on the market at a number like $509,000, you don't even show up on the radar screen for that $450,000 buyer, and they might end up spending close to $500,000 for a home.

Also, as with most products, there's some psychology to how you price a house. A $1,050,000 house may only be about 5 percent more than a $995,000 house, but it sure sounds like a lot more. There are also certain price points that are more significant than others.

For example, when you go over that million dollar mark, people begin to have some pretty big expectations for a house. If you get into those kind of numbers, be sure that your house can measure up.

How you price your house can have a greater impact than just about anything else you do to sell it, and if you get it wrong out of the box, it can be difficult to recover. In the multiple listing system, you need to take a house off the market for 90 days before you can re-enter it as a totally new listing and reset the days on the market clock to zero.

Work with your agent, and do your best to be as objective as possible. We know that's hard, since it's your home and your money. Everyone thinks "their" house is the best one on the block, and, to you, it may be. But, you're pricing the house for the market, not for you.

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