Price tops the list of factors a buyer considers before purchasing a home. It follows that price also is the most important factor in selling your home within a reasonable amount of time, and without putting yourself at the buyer's mercy when negotiating other aspects of the sale. Understanding your market, and pricing your home accordingly, gives you the best chance of a successful sale that leaves both you and the buyer confident that you've gotten fair deals.
Impartiality is a must when determining an accurate asking price, and achieving it means keeping your emotional attachment at bay. According to the National Association of Realtors, 77 percent of sellers overestimate their homes' values. Although the reasons vary, sellers commonly experience biases that cause them to exaggerate the value of their homes' positive features, and disregard effects of negative ones. This is especially true among sellers who make a lot of improvements themselves. Reference prices factor into seller biases, too. Sellers may focus on an anchor price -- the home's peak value for example, or the price they paid -- that has little or no relevance to current market value, and adjust the anchor to arrive at an unrealistic listing price.
Know What Determines Market Value
Generally speaking, your home's market value is the price recent buyers have paid for homes similar to yours. However, sellers trying to guesstimate value often make the mistake of basing their estimates on the price they paid, plus appreciation and the cost of improvements. Although some projects do increase your home's value, the average return on investment for home remodeling is just 66.1 percent, according to "Remodeling" magazine's 2014 Cost vs. Value report. Your work and investment pay off by making your home a more attractive option compared to similar homes without those improvements, but won't increase its value by the amount you spent.
A true estimate of market value must come from a licensed appraiser in most states, but real estate agents can predict your home's most likely sale price by using some of the same methods appraisers use. Contact several local real estate agents to request comparative market analyses. Ask the agents to base their recommended listing prices strictly on closed sales. However, it's also useful to review active and pending listings. Active listings are your competition. Pending sales tell you what listing prices eventually led to accepted offers. In markets with few or no good comparables, ask the agents to determine the average sold price per square foot of comparable homes in an area as close to you as possible. Review the listing details and photos to determine how your home compares. Be brutally objective.
Understand Your Market
The realities of your local market can help you evaluate the CMAs and adjust your expectations accordingly. Days on market is one of the most important. A realistically priced home should sell within a timeframe that's in the ballpark of the average. However, make sure the CMAs show the cumulative days on market, not just the days the property was listing that final time. In addition, divide the sold prices by the list prices to determine at what percentage of asking price comparable homes sold. If they sold at 95 percent of asking price, for example, you may need to list your home at, or only slightly above, market value. Alternatively, you can price high without pricing yourself out of the market if the comparables sold at 105 percent of asking price.
- RealtorMag: Most Sellers Estimate Home Value Well Above Recommended Listing Price
- The Globe and Mail: Selling Your Home? Steer Clear of Biases Like the "IKEA Effect"
- Realtor.com: How to Price Your Home
- Remodeling: Cost Vs. Value
- Boston.com: Do You Really Know Your Home's Value?
- CREOnline: How to Determine Market Value
- Photo Credit David Sacks/Photodisc/Getty Images