How to Price a Home for Sale

When pricing a home, sellers must look at it through the eyes of a potential buyer. Buyers have direct access to a wealth of data, they can effectively sit on the couch and get a general feel for values. If a home is not accurately priced, it's likely to never be visited. The challenge then, is to maximize list price and present the home in a way that extols the positives effectively enough to motivate a buyer to visit. This responsibility falls directly on the listing agent.

The Uniform Standards of Professional Appraisal Practice defines market value as: “The most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby:

• Buyer and seller are typically motivated
• Both parties are well informed or well advised, and acting in what they consider their best interests
• A reasonable time is allowed for exposure in the open market
• Payment is made in terms of cash in United States dollars or in terms of financial arrangements comparable thereto
• The price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale"

Market value has NOTHING to do with:

• What anyone thinks is the home is worth
• What the acquisition cost of the home was
• What is owed on the home
• The assessed value
• What Zillow or any of the other internet AVM sources say

Market value is influenced by:

• Value of COMPARABLE homes in the immediate area (comparable is “a reasonable alternative purchase to the subject”. Common sense should dictate what that means!)
• Condition of the home
• Characteristics of the home
• Trends in the immediate neighborhood and area
• Local and national economic conditions

A few more cautions when real estate agents provide opinions of value:

• Many agents will overestimate value to get a listing, 30 days later they will begin the "we need to reduce price" routine.
• A reliable evaluation requires more than 3 comps. A standard agent "CMA" is ridiculously ineffective.
• Are there comps closed within 6 months, active and pending comps? Appraisers have to use comps CLOSED within 12 months with up to 6 months preferred, are they used?
• Question the agent, why were these homes used?
• Are these homes truly comparable?
• Are there comps from similar competing communities?

Homes priced correctly have a 95% chance of selling; 5% over market a 50% chance of selling; 10% over market a 30% chance of selling; 15% over market a 20% chance of selling. Even if a buyer is found that is willing to overpay, it's highly unlikely that an appraiser will endorse the contract. So is an accurate listing price important? Is an agent that knows the market important?

There is no single "list price" for a home, there are far too many variables with real estate and it's best to develop a narrow range and listen to what the market says. There is a process that mimics the actions of a buyer and an appraiser; it benefits the home seller to look at the home as a they will. It also benefits a seller to use only experienced agents and to interview them thoroughly because they hold a significant financial outcome in their hands.