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What happens when you price your home improperly? You may think it can’t be that difficult to price a home, but it’s probably a little trickier than most of us believe. In part two of my Real Estate book the issue of how to properly price a home is explored. It turns out there are a lot of factors to consider when setting the price of a home and these are spelled out in some detail in this section. If a seller doesn’t get the price right, the home can take a long time to sell and even when it does sell there’s a good chance they may end up leaving money on the table.
Money Talks – It Really Does
Intuitively we tend to assume that setting the price of a home is pretty straightforward – you just take a look at what similar homes in your area are selling for and presto, you have your answer. If only things really were that simple. As I point out in the book:
“In today’s market, where demand is outpacing supply in many regions of the country, pricing a home is one of the biggest challenges real estate professionals face.”
A good real estate agent is there to advise their client on the best pricing strategy. They know that pricing the home as high as possible is usually not the best strategy and they’re not afraid to share this knowledge with their client. In this section it’s made clear that the challenge for the agent is getting their clients onboard with this philosophy. It’s human nature to want the best deal and the advantage of using a real estate professional to sell your home is to make sure that happens.
So how does a professional real estate agent know what the right price to sell a home is? In the book I assert that each individual sale is a little bit different. A client’s individual situation has to be taken into account, as well as numerous market related factors. It’s a fine balancing act and getting it just right requires a real estate agent that’s good at developing strong relationships with their clients so that they can get the strategy right.
This section also points out the dangers of thinking that you can just lower your price later. This is strongly supported by available evidence, as studies have shown that lowering the price after a home’s been on the market for a while can have a negative impact on the final sale price. By doing this the seller creates a belief among potential buyers that they’re highly motivated to sell. The end result may be a final sale price that’s much lower than originally anticipated.
Sellers may think pricing their home high will create some negotiating room for them, but this strategy is seriously flawed as I point out in the book.
“But what this actually does is lower the number of potential buyers that see the home. And we know that limiting demand like this will negatively impact the sales price of the home.”
The better strategy is to actually price a home slightly lower than the desired price. This way ensures that more potential buyers will find the listing appealing and create greater demand. The end result of this approach is often a bidding war which results in a final sale price that is actually higher than what the seller was hoping for. This may be the single most important revelation in this section.
Another important point in this section is that the job of a good agent isn’t to just tell a client whatever they want to hear. They should be upfront and honest:
“Great pricing comes down to truly understanding the real estate dynamics in your neighborhood. An experienced professional real estate broker will take the time to simply and effectively explain what is happening in the housing market and how it applies to your home. You need a broker that will tell you what you need to know rather than what you want to hear.”
This explanation provides a great example of how to recognize a good broker and also how to identify a mediocre one. In any type of sales job it’s much easier to simply go along with a client’s desires rather than giving them what they really need. It takes a different type of mentality to tell them what they need to hear and many brokers are either unwilling or unable to adopt this philosophy.
When you look at hard numbers you can really get a clear picture of how effective a given real estate agency really is. In this book there’s a strong focus on the sale price to list price, as well as the average days on the market. The JRS Realty Group out performs the industry average by a wide margin. A typical agent achieves about 92% of the seller’s asking price on most sales – The JRS Realty Group consistently sells homes for 98.5% of the asking price. That can mean thousands of dollars in the pocket of the seller. They achieve this by following the guidelines in section two of this book on a regular basis.
One last thing that’s covered in section two of the book is the benefit of obtaining a presale appraisal. At a cost of a few hundred dollars a seller can get a clear idea of what their home is actually worth based on the market and the features of the home itself. This is a great approach to consider as it eliminates all the guesswork that might otherwise go into determining a home’s listing price. By pricing a home correctly in the first place there’s greater potential to maximize the profit from the sale.
Perhaps the main thing to take away from section two of this book is that pricing a home requires a little bit of homework by both the real estate agent and the seller. It’s an important point and after reading this section you’ll understand why.