Every week I am called upon to do a Comparative Market Analysis (CMA) so a seller can see what the most reasonable price their home can command at that point in time. I do these CMAs by pulling data from the Multiple Listing System records and the county public records about similar homes that have sold in the past year. I then use my skill and education to make subtle adjustments to the figures, since no home is exactly like another. Doing this is as much an art as it is a science. I then report to the seller what I believe to be the highest price point they should start our marketing at.
In the majority of cases, the sellers listen to my analysis with care and more-or-less agree with where we should start out. This is crucial, since a mistake here can make a big difference in the time it takes to sell a home and what the ultimate price will be. Especially now that there are so many short-sales and foreclosures out there to contend with. However, there are sellers that disregard all the data and common sense, and incorrectly insist on over-pricing their homes.
So here are some things YOU SHOULD NOT RELY ON HEAVILY to price your home:
- Your Neighbors - I am sure these are often good friends and mean well. But sometimes pride or wanting to "be an expert" takes over and they can give you erroneous information. I had one seller insist that his neighbor's home had sold for $234,000 so his own home should be priced that high. In reality, the county records showed that the neighbor's home had sold for just $211,000! Quite a difference. Everyone likes to be thought of as a shrewd dealer, and that can cause some home sellers to "inflate" their profits. That is fine for bragging, but can be economically deadly if a neighbor down the street uses that misinformation to choose a bad price for his home. Sadly, the seller insisted that the neighbor was right and the public records were lying. On this occasion I was forced to reject the listing. The seller stayed with the higher price, and then waited and waited month after month. Now the homes in that subdivision are priced nearer to $150,000!
- Your Neighbors (Part 2) - Often once a home is listed, some "nice" guy down the street will walk up and tell you that you are underpriced and that he would have given you much more for your home. Do not let that encourage you to fight your agent for a price increase. Some people just like to make others feel bad or make themselves feel superior. If this happens to you, ask Mr. Always Right to get out his checkbook and that you will gladly sell him the home for the asking price right then and there. My guess is that he will find an excuse for not buying.
- Computer Generated Price Evaluations - While these can be fun to play with, there is no way a computer or online service can accurately value your home. These services draw from county records that, though normally correct about sales prices, are notoriously bad about the specifics of the physical state of the home. I have see some of the following errors when I check out properties.
- Air-Conditioning where county said there was none.
- A half-bath where none existed (my own home)
- County said there was a pool, but the owners had filled it in long ago
- Garage had been converted to family room, yet county said it was still a garage.
- Square footage of livign space in a 1,000 sq ft home was listed as 1,700 sq ft.
Also keep in mind that the county and these sites have no idea of whether the home or the neighboring one is painted purple, has a bad roof, is filthy, has an overgrown yard, etc. All of these can drop prices drastically. It takes a LIVE agent to properly evaluate and set the price for homes. Computers cannot do it. Even one of the online sites admitted that they were within 10% of the real price only 63% of the time. Not a record I would want to rely on. But you would be surprised how many sellers AND buyers will take these valuations as "gospel" and fight their REALTORS for an unrealistic pricing level.
Friends, Family Members, and even REALTORS in Other Parts of the Country - Trends that are happening here are not the same ones that are occurring in California, Michigan, New York, Iowa, etc. Each area is governed by market forces that are unique to each location. For example, here in Zephyrhils, Florida we have a lot of 55+ Retiree Subdivisions. There the prices have remained pretty stable with no huge drops. The seniors normally pay cash or are highly qualified for mortgage money using large down payments. However, outside of these subdivisons, prices have dropped somewhat. So I cringe when someone here says that their son, daughter, or friend "up north" says they should ask more for their home here. The seller hates to go against a family member's advice, but in reality, even an agent in Michigan cannot properly evaluate a home here. Nor could I do it for a home in Maine. So think once, then twice before you disregard the advice of your local agent to take the word of an out-of-area advisor. Could cost you in the end. People in Montana have little idea of what a home in Zephyrhills is worth. Common sense should tell you that.
Do Not Add Your Improvement Costs to Your Purchase Price Dollar-for-Dollar - Many people purchase a home and then make improvements to it. Then when they sell the home they want to recoup those expenditures, and perhaps make a little money too. This can work if you own the home for several years and have not over-improved the home for its location. For example, adding 3 more bedrooms in an area where the homes are small two bedroom houses. In most cases, few,if any, "improvements" will offer an immediate return of 100% of its costs. Some, like a kitchen or bath remodel may get near the 95% rate of return, but you would still lose 5% if you sold soon after the work was done. The longer you wait before selling, the more likely you are to recoup all or most of your costs. But if you have to sell quickly, do not be surprised if you may not get your money back. If you try to take what you paid for the home and then add on the costs of the granite counter top, new carpet, modern cabinets, etc that you installed last year, it is likely that your home will be over-priced and languish on the market. I had one lady buy a mobile home and then she got talked into adding a $7,000 water system (totally unneeded). She then had to sell in less than a year and wanted to add the cost of the system to her price. You can guess what buyers thought of that. In the end, let your agent advise you and then heed his or her suggestions.
Don't Let the Price of Your Next Home Determine the Price of the Home You Are Selling - There is absolutely no relationship between what your next home will cost and the price that buyers will pay for your current home. Buyers could not care less what you will be spending in the future. That is not their business or responsibility. An agent friend of mine had a home listed for $71,000, a fair price. However, it turned out that the sellers were going to buy a home in Ocala and found out it was going to cost them $10,000 more than they had thought. So they called my friend and had her raise the price of the home here by $10,000! Now, one thing had nothing to do with the other. And in all likelihood, they just killed any chance they had of selling their home here.
- Do Not Expect to Price Your Home High Enough to Pay Other Expenses - This is similar to the above paragraph. If you have owned your home for many years and have accumulated value in it through appreciation, and if you have avoided the temptation to pull equity out via a second mortgage, then you can expect to make a profit that you can use to pay off other expenses. However, there have been times when I have given my potential sellers a realistic asking price, only to have them tell me they need to get $25,000 more so they can: pay off credit card balances, pay off the loan on their truck, pay for a vacation, etc. Again, it is not the buyers' job to overpay for a home so they can bail-out sellers who have out-spent their budgets. Even if grandma needs a heart transplant, to use an extreme example, buyers will not pay more than the going rate for a home in a particular area. If a typical price is $175,000, you cannot expect a buyer to give you $20,000 more so you can pay off your bills. Just ain't gonna happen folks! Even if you found a buyer who was generous or ignorant enough to overpay, the bank's appraiser is going to come right along and cut you (and the home's price) down to size. In this market homes do not appraise that much over value!
- Do Not Let Your Emotions Rule Your Thinking, Be Objective: Recently I read a study by the University of Florida (I even think I posted it somewhere here on my blog a while back). The gist of the study was that almost all Floridians understood that the homes in their areas had gone down in value due to the current market conditions here and around the United States. HOWEVER, many of them felt that THEIR homes were the exceptions to the rule and had, in fact, increased in value. Just as a parent thinks that his or her child is the best and smartest in the world, often homeowners feel that they have the best home around. Perhaps they have invested in special improvements or done some of the work themselves, and now feel extra proud of their accomplishments. The truth is, however, a buyer does not care who installed the tile floor or designed the gardens. They do not have any emotional investment in the home like the sellers do. It may be hard for you to accept, but emotional investment has zero value when selling a home. Here's an example. I had to do a CMA for a couple a few months ago. They thought that one of the big selling points of their home was the rock garden out front. Apparently they had collected stones from all of their travels and had piled them in the yard. And I do mean piled. The rocks had absolutely no value to anyone but the couple. Yet they thought it would be a good selling point. In reality, it was a negative, not a positive. Emotional attachment gave it value, but just to the sellers. No one would pay an extra $2,000 for a pile of rocks, especially when the rest of the home had major issues. So do not let emotions reign freely when you go to sell your home. It can be hard, but it is not a family member you are marketing. It is, after all, a building. Listen to the objective voice of your agent and those of other agents and potential buyers who give you feedback. In the end, emotions will seldom sell a home, common sense and objectivity will.
These are just some of the methods or resources you should not use to set the price for your home. My best advice to you is to employ a well-educated, experienced, full-time, and full-service agent who will research all of the available data and arrive at the highest and best reasonable price for your property. In fact, it is a violation of the National Association of REALTORS' Code of Ethics to knowingly recommend a price that we know is ridiculously high, just so we can get the listing.
If you over-price your home it is YOU that will pay the price in time, frustration, and profits. Pricing it right will increase the odds that your sale will go smoothly, quickly, and with fewer hassles. And, ultimately, perhaps more money in your pockets.
For more information or to discuss this topic further, feel free to call me at: 813-783-4444 or e-mail me at: jelwell1@tampabay.rr.com You are also invited to visit my webpage at: www.jelwell.century21bnr.com
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