Real Estate News

How to Set a Price For Your House

By PATRICK BARTA
Special to RealEstateJournal.com

Question: My husband is retired and I expect to work for about the next 10 years. We own our home and have lived in it for 27 years. We've found a condo in a suburb we like very much and feel that our home has topped out in appreciation, so we're thinking of moving. We need an investment that will see us through the next few years and appreciate faster than our current home. The Realtor tells us that our home will sell in 45 to 60 days if we price it right. Should we price it higher so we have room to negotiate?

-- Jack and Rose, Detroit

Jack and Rose: Pricing a home above the market can be a big mistake. To understand why, consider the following story.

The owners of a 3,000 square-foot Colonial home in White Plains, N.Y., recently decided to put their house on the market, without a real-estate agent, for $899,000. When a potential buyer offered $825,000, they refused to sell.

A month later, with no takers, the sellers decided to hire a real-estate agent to list the home. With some quick research, the agent determined that the house should be listed at $799,000, in part because there was another house nearby that had been sitting on the market for a long time at an even lower price, $760,000.

After some negotiating, the sellers finally agreed to list their property for $849,00, but after several more weeks, there were still no takers. They agreed to drop the price further to $799,000.

Not long afterwards, the owners found a taker -- the same buyer who offered $825,000 two months earlier. But this time, the buyer agreed to pay just $775,000 -- a full $50,000 less than they had originally offered.

The moral? Don't ask too much for your home. Buyers aren't stupid, and they have more tools than ever to gather market information, including a slew of home-listings web sites that allow them to research the marketplace with a click of the mouse.

"Buyers are so sophisticated today that they almost know better than the brokers what the homes should be priced at," says Garry Klein, an associate broker at Prudential Rand Realty in the New York suburbs -- and the agent who listed the White Plains house.

All of this is even truer this spring, amid signs that the housing market, while still very strong, is cooling a bit in some areas. Sellers who used to be able to pick prices out of the air are finding that buyers have more supply to choose from, and are less willing to fall into bidding wars with other buyers. Plus, a home that sits on the market for a long time, or has its price reduced, can often appear undesirable. You don't want the buyers to leave your property wondering why the house couldn't attract any interest, a possible sign that something was wrong with the house.

If you ask a more reasonable price, on the other hand, you're much more likely to draw interest from more than one buyer, a situation that always favors the seller. With competitors in the picture, buyers will be more willing to overlook dings or problems that appear in the inspection process, and they might even be willing to bid up the price of property.

All of this leads to a key question: How do you set the right price, anyway?

One good way is simply to rely on real-estate agents. They're not likely to talk you into asking too little; after all, their commissions are tied to the final sales price, so they have every incentive to sell your home for the highest possible figure.

Typically, a real-estate agent will perform a "comparable market analysis," in which the agent looks at recent sales prices of similar homes in the neighborhood to get a feel for what the market will bear. Agents also can bring other knowledge to the table, including a sense of how many similar properties are listed on the market. If there are lots of comparable homes available in your area, they might advise you to lower your price a bit to make the home more competitive.

Of course, you don't have to go through a real-estate agent to calculate a fair-market price. But if you don't, it's wise to do some homework. Some web sites, including forsalebyowner.com and domania.com, allow sellers to pull up sales prices of nearby properties, though it's sometimes difficult to obtain certain details about the homes, like the number of bedrooms or square footage.

It's also possible to get your house appraised yourself. Electronicappraiser.com will provide an "automated" valuation of your home using information culled from electronic databases, often for about $30. Some real-estate experts believe it's more accurate to have an appraiser actually visit your house, but that can cost between $200 and $500 and take several days -- or weeks -- to complete. Even so, a traditional appraisal might not be a bad investment, especially if you're not planning to go through a real-estate agent and therefore not paying their 6% commission.

No matter what you do, however, make sure that you base your sales price on some real information about the marketplace, and make sure it's in line with what the market will bear. If you don't, selling your home could turn into a much bigger headache.