The other day, while I was waiting for my to-go order at Islands, I sat and watched one of the many TV monitors they have throughout the restaurant. I saw footage of surfers attacking giant waves and it got me thinking about the similarities of pricing a home for sale. You’re probably wondering, where I am going with this, but stay with me, I know where I am going.
If a surfer doesn’t paddle out in front of the wave they simply won’t catch it, no matter how valiant the effort. Then they’re forever paddling to try to catch up to it, in essence, chasing the wave. Pricing a home for sale is much the same. If you don’t price a home to get in front of the market, create a lot of interest and activity, and generate offers, you put yourself in the unwelcome position of “chasing” the market. Reducing the price of your home (often several times) in an effort to catch up to a market that has already passed on your home is chasing the market. And in many cases, you ultimately sell your home at a considerably lower price than what it would have sold if you priced it right in the first place.
But what is the right price? This is an age old question and to answer it, it is important to acknowledge the Five Principals of Effective Home Pricing:
1) Like any other commodity, the buyers, not the seller will ultimately determine the sale price of your home.
2) A home buyer values your home based almost completely on “Perceived Value,” not what I like to call, the home seller’s “Experienced Value.”
3) Effective home pricing is the most important and powerful marketing tool.
4) Urgency creates action.
5) The three most important things in real estate. . . Price, Price, Price.
The three most important things in real estate used to be location, location, location, but in today’s world where everyone has access to real estate statistics, pricing is everything.
Every home has its “trigger price.” This is a list price creates sufficient interest and activity so that the home will have an offer in time that is reasonably anticipated in the real estate market in which the home is being offered for sale. The “expected” time on market varies depending on available inventory, economic factors, type of real estate being offered (home, condo etc.), location of property, and lastly, consumer confidence. Where I work, on the West Side of Los Angeles I would estimate our Expected Market Time (EMT) to be two to three weeks.
One thing I can say with great certainty is, if your home is on the market much longer than the EMT, the buying public will perceive your home to be overpriced and they will then wait for you to reduce your price (this is when the sharks start to circle). Now you are in the unenviable position of having to “chase the market” in an effort to get out in front of that wave, which is much more difficult once the wave has passed (see, I did know where I was going with this analogy!).
Finally, one has to determine that Trigger Price, that magical price that gets buyers off the fence and writing offers for fear that if they don’t move fast, they may miss out. To illustrate the principles in determining value lets take two extreme examples of pricing. If you own a home in a neighborhood where most homes are selling between $2.5 and $3.5 million, and your home was similar to these homes, but was listed for $10 million, would you see an offer? Conversely, if your home was listed for $500,000 how many offers do you think you’d have? Twenty, fifty, one hundred? With that kind of “bidding war,” how high would you expect the price to be bid up? The sale price would probably end up somewhere in the range of the other homes in the neighborhood.
I’m not suggesting this extreme of a strategy (although I’ve seen it used very effectively, especially with lender-owned properties) but I am certain there’s a price somewhere in between that would generate the necessary activity to achieve the best price and terms possible. For most home sellers this strategy feels a little like “not having a safety net”, but this is ultimately the best strategy.
To fine tune the list price it is important to consult with Realtors who have “intimate” knowledge of the listings and sales in your neighborhood. Such a Realtor can expertly assess your home’s value as it compares to the recent market activity and come up with the right list price to get your home out in front of the wave of home buyers and accomplish your home-selling goals.
Mickey Kessler is a twenty-year Realtor and Associate Manager at Coldwell Banker in Brentwood 310-367-2322.
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