Determining List Price

The most critical step in preparing to market a home is determining the listing price. – It’s true!

All sellers want to realize the highest possible return from their property. However, finding the right market price is critical.

When a home is priced too high, those buyers for whom the home would be right won’t see the house because it is out of their price range. Buyers who are in the price range suggested by the asking price will not see the property as a good value and will buy something else. Furthermore, agents will be reluctant to show the property, except perhaps to make a competing property look like a good buy. Good agents are not those who can sell overpriced homes to gullible buyers; good agents are those who present to buyers’ homes that are good, fair values.

Sellers often feel that they want to test the market at a high price because they don’t want buyers to undervalue the property. While there may seem to be no harm in starting high and lowering the price if necessary, testing the market can be risky. A property receives its fullest exposure in the first three to five weeks on the market as illustrated by the below graph. The best buyers for any property are those choice prospects who will see a property during those first weeks. If it does not appear to be a good value, they decide not to buy, and it is rare that such buyers return to a property later even if the price is reduced. Thus, the person who tests the market may turn away the best of his potential market.

The overpriced house lingers on the market, and statistics from the Multiple Listing Service indicate that the longer a house is on the market, the lower the selling price in relation to the asking price. Yes, you could actually realize less for the property than if you had listed it for a lower price to begin with!

In addition to receiving a lower price, because of the increased time on the market, the seller would have continued to pay carrying costs – or the other ongoing property expenses such as:

  • Interest
  • Taxes
  • Maintenance
  • Utilities
  • Loss of the potential alternative uses of funds tied up in the property.

There are also non-monetary costs. An unsold house prevents the owner from proceeding with whatever plans led to the decision to sell:

  • Purchase of a different home
  • Moving from the area
  • Consolidating households
  • Liquidating an estate
  • Concluding a divorce

The costs of deferred personal plans cannot be measured, but they should still be kept in mind when pricing a home.

Pricing a home is part art, part science. Like science, the pricing process should be based on evidence: the prices paid for comparable properties in recent sales. Since no two homes are exactly alike, however, the evidence must be evaluated and a judgment reached. Because each of us has a great deal of emotional attachment to our own home, the judgment of professional agents who can take a detached view is vital. The right price produces the best return. The cost of overpricing can be very high.