Pricing a home correctly is typically the most challenging part of listing a home. To successfully sell a home, an accurate price must be in place to complement a solid marketing strategy. Study after study points to the fact that a home’s value decreases the longer it’s on the market. That is why pricing your home accurately from the beginning will typically generate increased activity from buyers and higher offers. Contrary to the popular belief that a higher list price will yield a higher sell price, overpricing will actually drive the value of your home down because it will sit on the market for a long time. These days, buyers have access to the same information as REALTORS and are not fooled by an overpriced home; they will typically steer away from it if they believe the price is too high.
Take a look at 5 things to consider when it comes to pricing your home.
1) Comparative Sold Properties
Analyzing recently sold comparative properties or “comps” is the primary way market values can be indicated, however in a volatile market such as this one in 2022, other factors need to be considered. If a home sold for $500,000 in January when there were very few homes on the market and interest rates were almost half of what they are now, that same home now, with more homes on the market and much higher interest rates would have to be listed for potentially less to attract the same buyer, as affordability is diminished under these current conditions. To search for comps usually the timeframe is within 6 months, but may need to be searched for more recent sales to get a better sense of the local market.
The search radius will be determined by how highly populated the area is. For example, if you are close to Boston, you may only need to search a half or a quarter mile radius because it’s densely populated. If you are in a more rural area, you may need to search a radius of a mile or two wide to obtain a higher quantity of home information. It’s important to note too that the sale price listed for a home isn’t always the actual sale price. The price shown on listing sites doesn’t always include closing costs or concessions, making the listed sale price inaccurate. The MLS listing can give you a more accurate sale price for the homes in your area.
Your real estate agent can also help in pricing your home – they know a lot about the area your home is in and will work with you to recommend a fair price based on the homes around you.
2) Under Agreement Date of Sold Properties
This is as important as #1 but it is often overlooked by home sellers and agents. It is necessary to look at the date the offer was accepted on a home because you must consider what the market was like at that time. If the market exhibited low inventory, the sale price may have been driven up because buyers likely competed for the home. On the contrary, if the market exhibited high inventory, the sale price would have been driven down because sellers were likely competing for the sale. Every year from June through September, home sellers see what their neighbors’ homes sold for that past winter and they want to price their homes for the same amount or sometimes even more. Winter and spring’s low inventory and higher sale prices should not influence summer or fall’s listing prices because inventory is generally higher at that time of the year. Especially in this market, it’s important to remember that even comps from earlier this year may not be the best point of reference when deciding your price. The market has gone through many changes over the past few years and having the comps from a time most reflective of the current market is important!
3) Comparative Active Properties
Looking at other homes that are currently for sale in the area is a great way to see where your property would fit in and how it would compare. Marketing and attractively pricing your home to create a sense of urgency is the key to beating the competition and selling your home. Many sellers compare their homes to other active homes and want to price above them. If a home similar to yours is on the market and isn’t selling you should not list your home for that price and certainly don’t list it higher. Instead, you should list lower than them to give yourself a competitive advantage!
4) Current Inventory
Real estate is all about supply and demand which is why this is also very important. This consideration is very similar to #3 because it is again about competition. When inventory is low, sellers typically sell for more. Ask your agent for reports on how inventory is in your entire town and the abutting towns. The higher the inventory, the more choices buyers have and the less they will be willing to pay. The lower the inventory, the more they will pay.
5) Market Condition
The pattern of record declines in inventory at the beginning of the year began in 2016. Then 2017 inventory followed similar increases and decreases to the years prior, and there were still about 20% less homes on the market compared to 2016. 2018 and 2019 also saw record lows in the number of homes on the market at the beginning of the year, the lowest amounts ever recorded. 2020 saw another year of record lows, but with the onset of the COVID-19 pandemic in March 2020, the housing market was sent into a complete frenzy. Homes were coming off the market in droves and with historically low interest rates, the competition for homes that were still on the market skyrocketed. The rest of 2020 saw immensely low inventory and high demand, which carried through 2021. 2022 once again started off with low inventory, but things are changing! More homes are being listed and competition has decreased.
If you have to sell your home at a time when market conditions are inhibited, all the same considerations above apply but you will likely have to price more competitively in order to sell. If your home is listed and not selling, consider adjusting the price.
In Closing
Try not to overthink or allow emotion to dictate your price. It’s a business transaction first and foremost. The market right now is strong and is getting stronger day by day. If you price within reason and market correctly, your home will sell. Knowing how much competition you have should determine how aggressively you and your agent price your home. Do your research and price competitively.