As many seasoned real estate agents and brokers will tell you, pricing a property correctly can directly affect the speed and ease with which a property is sold or purchased. Finding common ground between a buyer and a seller can become stressful for both parties. Following are some important factors to keep in mind, whether you choose to use a real estate professional or go it alone:
Data Informs Real Estate Decisions
Knowing how to price a property correctly to sell or knowing what amount to offer when purchasing, requires both skill and knowledge. The process begins with targeted market data research, which forms the basis for the entire process. Secondly, you need to determine the reason why you are embarking on this journey. For example, did you become the executor of a trust or did your lifestyle or family circumstances change and require that you downsize or expand, etc.? We call these factors the “psychological” part of pricing and value. Next, you combine these two elements and begin the in-depth process of pricing – in our industry, we call this a Comparative Market Analysis (CMA).
An accurate CMA should include properties Currently for Sale, Under-Contract (aka Pending-Sales), Sold and Expired Listings (properties that were on the market and are now no longer available for sale). Each category should compare at least five or more properties, including their value, condition, size, etc. By going through this exercise, you establish the basis for a starting price.
Intellectually, you understand the laws of supply and demand; you will hear statements like: “the market determines value”. However, this is easier said than done. At the end of the day, for most people, buying or selling a home will be the largest investment they will ever make.
Finding Common Ground
Next comes the tricky part! The emotional and psychological value of a home. Buying or selling your personal residence is emotional. As a seller, perhaps you raised your family in the home you are selling and have wonderful memories of living there; thus, the value (the price) that would be acceptable to you as a seller, might not necessarily be the highest bid you receive but rather a buyer that you feel a connection with.
As a buyer, you might decide to pay above the asking price because the property is close to all your needs (business, schools, shopping, etc.). Untangling emotions from what the fair market value price should be, is just as important as the analyzed data. Historically, buyers and sellers become willing and able buyers and reach a meeting of the minds when they arrive at within a 5-10 percent margin between the asking price and the selling price.
Time is of the Essence
Timing is a vital part of achieving a desirable price. Read up on the state of the market – how is it performing in your local community and city and what are the local professionals predicting for the coming year? Real estate sales have two cycles, a buyer’s market and a seller’s market. Find out what market cycle your town or city is in. If it is a buyer’s market and you don’t have to sell immediately, hold off until the market works more in your favor. If it is a seller’s market and you are a buyer, perhaps the rental market might be a better option for the time being. For example, current market indicators in New York City, suggest that we are entering a buyer’s market cycle. Again, it is equally important not to overgeneralize and to remember that city-wide and nation-wide statistics cannot address a specific market area or location. Consult with your local expert who can best advice you on specific neighborhood conditions. Usually micro statistics will indicate a mixed-market, i.e., entry-level to mid-level properties might be a seller’s market, while high-end to ultra-luxury might be in the process of becoming a buyer’s market.
The most important thing to remember when it comes to pricing – whether it’s a home you are buying or selling, emotions will always get it in the way. Keeping your head and your heart separate is key! And above all, make sure you’re working with a trusted real estate professional who will help guide you through the difficult yet rewarding process.