6 Avoidable Pricing Mistakes Homesellers Make
In this article, we focus on the unconscious mistakes home sellers make when putting their properties on the market. Below are a few of the key salient points of this article.
- Market expertise is invaluable as pricing is both an art and a science.
- In a good market houses goes up in value, but the improvements in them do not.
- If the market is telling you something, you had better pay attention to what the market is saying.
Hiring the right real estate agent or team with extensive knowledge of the market and a sound marketing plan is the most important decision when selling. Secondly, accurately pricing the property is equally as important. Consumers in Brevard County enjoy transparency in the real estate market, that’s the nice part of pricing a home. They are able to get excellent information regarding the prices other comparable properties have sold for.
So with all this data, pricing a home might seem easy…but not so much. Bad pricing can affect the bottom line of what your the home will ultimately sell for. Sellers who have priced their home inaccurately find themselves languishing on the market for months and missing out real buyers by pricing over their heads.
In this article, you get to learn about common mistakes sellers make and how to avoid the same blunders when it comes to pricing your own home. I’ll break it down for you the same way I’d explain it to my clients.
Pricing to the unsolds, rather than the solds
First of all, you need to know that;
”Sellers make a great mistake by basing their pricing on what is up for sale, rather than what is sold”.
Comparative Markets Analysis
Every comparative market analysis is based on an analysis of two types of properties which are: the SOLDS, these are properties that have actually closed, and the ones currently in the market, the UNSOLDs.
To get a sense of what the home is worth, you need to look at the sold comparable sales first…after you establish a range of value from the sold listings, then take a look at the unsold listings. This will give you a sense of where to strategically price your property within the market, basically giving you a sense of the prices you need to beat.
The properties that have actually SOLD are often neglected or ignored by too many Sellers and inexperienced agents because they price their home according to the ‘unsolds’ — these listings that are currently languishing on the market. Think about this logic; why should you price your home based on the unsold ones when trying to sell your home? The reason is, pricing it as the unsold homes only means that you’re just going to join them. You should price it according to what has sold. That’s the market price. Meanwhile, you need to look at the unsold properties is to figure out what is needed to beat the competition.
In fact, those unsold and overpriced homes are great at making your accurately, lower-priced home look like a bargain. Sort of like when Amazon shows you a higher “list price” on a gadget to make the sales price look like a steal.
It is simply logical to say that if you want to get sold, price to the SOLD listings and if you want to be unsold, price to the unsolds. You are free to make a choice. Moreover, agents don’t help matters by calling unsold homes “actives.” What is so active about that when it is just sitting there, doing nothing? That should not be the case and should be stopped!
Effect of overvaluing the amenities
Often times, putting too much faith in the value of unique amenities such as faux painting, enclosing a patio, bathroom finishes, and high-end appliances and so on is one mistake sellers make.
A seller once spoke to me about his home which was priced over $100,000 more than a comparable property just down the block. When I sought to find out how, he said “Well, I have new tile and granite countertops.” That’s OK, but a buyer can put in those finishes for about $20k, and it’ll be brand new, yet he was pricing it as a $100,000 value. Well, he’s not alone as lots of sellers make that mistake. Psychologists even have a name for it — the “endowment effect,” which is our tendency to overvalue things just because we own them.
Amenities do have value, just not enough to make a huge difference in price. The old joke in real estate is that value is based on three things: location, location and location. I said it’s an old joke, not necessarily a funny one, but one that’s mostly true.
The biggest factor in pricing a home is the location, which is obvious to anyone who has priced out a Manhattan apartment. The size is also considered — how big is the home? Once the location and size is known, you can pretty much establish a general pricing range. That’s when you start looking at all the other aspects of the home including; style, condition, lot quality — and the amenities which are important because they can change where you are in that range. But they don’t move you up to a new one.
Trying to get full value for improvements
Sellers should avoid placing too much value on the improvements made in the home. This has become a habit. For example, if a home was bought for $500,000 1o years ago and about $50,000 was spent in redesigning the kitchen five years ago. Then two years ago, they spent $25,000 on roof repairs. At the very least, even if the home hasn’t appreciated in value at all, they should be able to sell the home for $575,000, right? With that, haven’t they improved the house by $75,000 with all the work they have done? Not really because no one ever gets 100 cents on the dollar for the improvement put into such. Plus the roof repair is really just considered a maintenance item and not really an “improvement.”
If you have any doubts, check out the results on Remodeling Magazine’s yearly “Cost versus Value” report; it tracks the impact of standard remodeling projects on resale value. In most cases, improvements earn back about 60 percent to 70 percent of what they cost.
You may ask why? Well, just think of it this way: Most liabilities such as cars, computers, pianos, etc., that you’ve ever bought have gone down in value since you bought them. Once used up, they start to depreciate, right?
As earlier stated, in a good market, houses go up in value but the amenities in them don’t. Therefore, the value of the home does not change just because you put those things in them. However, even if your house goes up in value, it doesn’t mean that everything in the house goes up in value, too. Everything you have bought in the home including that refrigerator, the new roof or cabinets are all used up now and depreciated in value just like when your car is used.
Pricing Based on the ‘Need’ of the Sellers
Sometimes, sellers make the mistake of pricing according to the next home they want to buy, not the home they currently own. That is, they don’t even look at the comparable sold properties. All they care about is what they need for the down payment on their next home, and they figure out the price from there. Take a look at this example: “I still owe the bank the sum of $200,000 and I need $100,000 as a down payment for my new home, so we’ll price it at $300,000.” You may ask; what’s the problem with this?
Well, the problem is that no one cares about what they need. It’s nothing personal, after all, they do the same thing. A seller might be buying a home after selling the current one. The now-buyers will not care so much about the seller’s need for their purchase.
Beware that markets don’t work like that. Buyers don’t price homes in a vacuum: they make offers based on what other homes have sold and are selling for. Real estate provides an open and transparent market, so sellers can’t price their homes according to their personal needs.
It works both ways. If sellers get an offer that’s too low, they don’t care if the buyer says, “But that’s all I can pay!” They don’t give discounts based on need, so they shouldn’t expect a premium, either.
Falling in love with the AVM
Finally, sellers make the mistake of relying too much on a Zestimate. They price their home according to the Zestimate when it comes in at a really high price and when it comes in a low price, and then it’s obviously just a stupid computer glitch and can be safely ignored.
The Automated Valuation Models, or AVMs, are also available everywhere now, including on a lot of broker websites. The AVMs were designed to provide quick and easy macro-level valuations for institutional investors who didn’t have the time or ability to do a detailed analysis.
Most amazingly many people and even those who created them do not think that they’re as accurate as an actual comparative market analysis from a professional real estate agent or appraiser.
After all, Zillow itself admits to a national median error rate of about 8 percent, which means that half the Zestimates are off by more than 8 percent.
So for homes with Zestimates of, say, $400,000, only half those homes are going to sell inside a range of about $368,000 to $432,000. The other half is worth more or less than that range.
Sellers should think about how they would feel if an agent comes to their house and says, “Well, my advice would be to price it somewhere between $368,000 and $432,000, and I’m confident that we have a 50 percent chance of selling it within that range.”
Would a seller have a lot of confidence in that agent? Well, then, they shouldn’t fall in love with that AVM.
Mistake sellers make afterward
Sellers are unable to avoid the five big mistakes mentioned when pricing their home, but they are also likely to make a mistake afterward— namely, they set it and forget it.
Even in the best of circumstances, the initial home price is a guess. Pricing as an art and a science, means the market is unpredictable, and so when you list a home you never quite know exactly how it is going to react.
Looking from the perspective of pure Economics 101, we can observe that where the sellers initially price a home does not really matter because the market is going to correct them. Therefore, if they price it too high, the home will languish on the market as buyers take a pass until they reduce it and if they price it too low, they’ll drive intense buyer demand that can drive the price up over asking. Either way, the outcome is certain that, through reductions or bidding wars, they end up at the true market price.
Those economic fundamentals depend on listening to what the market is saying and being able to answer the following questions:
- What feedback are you getting from agents?
- What are buyers saying?
- What kind of traffic is your listing getting online?
- Is that traffic turning into showings?
- Into offers?
- Have other similar homes on the market sold?
- What for?
- And what happened to the buyers who did come to look at your home?
- Did they buy something else?
In other words, sellers need to stay engaged and involved in the marketing of their home and most importantly, listen to what the market is saying. If the market is telling you something, you’d better listen.
Finally, sellers need to keep one thing in mind: they’re the boss. The agent they hired works for them and that agent should be given market data to clients which enables them to make informed decisions on price. Ideally, Sellers should be allowed to consider all that information and make a reasonable decision.
Although it’s their home, if they want to price it to the unsolds or price it to what they “need” or simply get every dollar they put into it — then that’s their call. But it falls back on the seller if they go against their real estate agent’s recommendations and are still living in a home for sale six months later.
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