Do's and Don'ts Of Setting Your Sales Price

We've all heard location is everything and I agree, but the single most important factor in selling your property is price. At the right price, almost anything will sell, no matter where it is.  Let's look at how to find the "right price".

Here are three ways NOT to set the price:

1) Predetermined Return on Investment (ROI).

For example, you decide that you must get a 20% ROI -the house you bought for $400,000 must go for $480,000 plus commission and other expenses. However, real estate sales in your neighborhood may not support your price.  If other comparable homes in your area are selling in the $440's, buyers are not going to overpay for your house.  The truth, buyers simply don't care about your investment (initial investment, equity and return strategies).  So real estate sales are not made based upon a Seller's ROI.

2) Return on Improvements.

For example, you put on a new roof ($10,000) and installed a new HVAC unit ($5,000) so you want $15,000 above what other properties have been selling for in your neighborhood. Buyers don't care what you paid for maintenance and improvements, only that they don't have to do it. All that matters to the buyer is that the property is in good shape. Again real estate sales are not made based upon a Seller's Return on Improvements or Maintenance, but will make your home more desirable over the competition.

3) Return plus coverage of your outstanding mortgage and/or the Real Estate fees.

For example, you owe $100,000 on your home and the real estate fees are going to be $12,000. You want your home to sell $120,000 above what you paid.  I hear this a lot!  The truth is, no buyer cares what your mortgage is or how much you are paying in real estate commission. Sorry, they just do not care!  Many are paying off mortgages and most everyone is paying commissions.  If you're not paying a commission and going the FSBO route, typically the buyer will want you to reduce your sales price and carry the savings onto them anyway.  So again, real estate sales are not made on the basis of what a Seller owes or pays in real estate fees.

What determines the market value of a home is not an Appraiser, Realtor or a Seller, but what a willing and able buyer will pay.  The best way to establish your price is by looking at comparisons of what is on the market now and what has sold and at what price.  Any Realtor will gladly provide what is called a Comparative Market Analysis for your property.  Click to request one here. Below is the information a CMA provides.

1)  Solds - Find the best three comparative homes in your neighborhood or area that have sold within the last six months.  The comparable homes should be within 250 sq. ft. +/- of your home, within 5 years of the same age and have similar features and upgrades.  Divide the sales price by the square footage of each home which will provide you a low end and high end.  Inex:  Comp 1 sold for $90. per foot, Comp 2 sold for $92 per foot and Comp 3 sold for $91.50 per foot.  Based upon comps, your home should sell between $90 - $92 a foot.  If your home has 2,000 sq. ft. (living space) multiply 2,000 x $90 and then again by $92.  Your sales price range is $180,000 - $184,000 based upon comparable sales.

2)  Competition - It is also important to see what other homes are offered on the market.  This is your competition.  You do the same steps as above and list your price competitively.  If they're all priced within $92 - $95 a foot, you don't want to price yours at $98.  You'll just help sell your competitors homes.

3)  Pendings - These are homes that are on the market and have a pending contract to close.  Even though you will not know the sales price on the contract, you will know the asking price and how many days on the market.

4)  Expireds - You do not want to be in this catagory.  These are homes that have been placed on the market and did not sell.  Usually there are three reasons a home does not sale; location, condition and price.  Since your home is in the same location, you'll want to pay attention to the condition and the price.  Usually it was over priced or did not adjust down in price for bad condition.

By following the above steps, you should have a good indication of the state of the market and how much your home should sell for in such market.  If you are not willing or unable to sell at the market value maybe you should wait to sell.  Either price to meet the market or wait for the market to come up to you.

In conclusion, listen to the advice of your Realtor. Look at comparisons, what is on the market now and what has sold and at what price. This is an indication of the state of the market.

Hope this helps!