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10 Tips for Pricing Your Home

Real Estate Pictures Pricing your home can be tough, but finding the right balance can help you make the sale. See more pictures of real estate.
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Pricing your home for sale can be tricky. When looking at numbers in the hundreds of thousands, it's easy to be blasé about 10k here or there. But take a second to sit with the idea of what that money really means. If you throw a price at the market willy-nilly, you could easily miss out on a new car, a year of college tuition, a couple of luxury vacations, a down payment on another home or even a year's salary.

On the flip side, it wouldn't be hard to be whitewashed by optimism and price your home out of the market entirely. No one wants to be "that house" that's been sitting on the market for 18 months like a teenager without a prom date.

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Instead, it's time for realism. A little up-front research and legwork to define the all-important price of your home can help grease the wheels for an easy selling experience, while maximizing your dollars at the end of the day. Here, we'll look at some of the things to consider when pricing your home.

Online calculators are a great place to start because they're quick, easy and free. In fact, a little bit of clicking around can help you make the decision about whether or not it's a good time to sell at all. When valuing your house online, be sure the sites you use not only return a price, but also connect it accurately to your address. Also, because online estimates can vary widely, make sure you get at least five prices, nix any that seem unusually high or low, and then average the rest.

But these calculators are only a start. The data they collect is very general, including the standard things like square footage, beds and baths, and neighborhood comparables. They don't do a walk-through, so they don't know if you're next to the highway, you have an outstanding view or the condition of your house is better or worse than similar houses in the neighborhood. In other words, these estimates are just that: estimates. Once you've come up with a general idea about the price, you can move on to the next step.

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After getting a ballpark estimate, it's time to ask the experts. And why not? It's free. Listing agents need your business, and one of the things they do to get it is offer a free walk-through and a Comparable Market Analysis (CMA). A CMA should include carefully selected comparable properties, a listing of the factors that make your house unique and an analysis of current market conditions. Consider getting at least three CMAs from three different agents.

But keep in mind that while they may certainly be friendly, real estate agents aren't necessarily your friends. They need to make money, and to make money, they need to get your listing. To get your listing, an agent may be prone to offering an unrealistically optimistic listing price, imagining you'll choose the agent who thinks he or she can get the best price. If an agent's suggested listing price seems too good to be true, it probably is.

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Instead, you might go straight to an appraiser. Appraisers are impartial, but you'll have to pay for this clear-eyed opinion. However, in addition to getting a price, having your home appraised before putting it on the market allows you to fix things that could slow a sale or even update things that could get you a better selling price. Talk to your appraiser to see what he or she thinks could make your home more valuable, and then follow through with the appraiser's suggestions.

Your home is probably worth top dollar to you because it's full of memories, but try to consider things from a buyer's point of view.
Your home is probably worth top dollar to you because it's full of memories, but try to consider things from a buyer's point of view.
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You've heard the term "sentimental value." And just as the word "value" implies, the memories your house holds can add to its price. That is, if you're thinking like a seller.

If you're thinking like a buyer, however, these memories don't mean a whit. Neither does your seller's optimism. When you're pricing your home, learn to think like a buyer and not like a seller. Prepare to be rational.

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For example, when looking at your house among a menu of comparables, imagine which one you'd buy if you were looking at them from an outside point of view.

However, don't be afraid to use irrationality in your favor. The grocery store knows that a $2.99 gallon of milk might as well be $3, but for whatever reason, consumers continue to see $2.99 as significantly less expensive than milk a cent pricier. So think like a buyer and imagine the big, round numbers that are near your house's value. Instead of pricing just above these estimates, price just below them.

What's your home worth? Well, it's worth what someone will pay for it. And what will someone pay for it? Well, they'll likely pay what they've paid for similar houses in the recent past. You already know this. It's easy to have Realtors gather lists of comparables, but once you have these lists, it's worth evaluating them yourself. You know your house and location best, so you might be best equipped to slot your house accurately among the competition.

That is, if you know the competition. You can bet that buyers will visit a few of these comparables, and you should, too. There's nothing like walking around a house to see how it stacks up against yours. But remember: Active listings are your competition, but they're active for a reason. They haven't sold yet. Looking at comparables currently on the market might give you a good picture of what houses in your neighborhood don't sell for. Instead, try to find out as much as you can about what has sold, and nest your house among these prices according to how you -- and maybe only you -- believe it stacks up.

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Look at comparable house prices in your area to get an idea of where the market is.
Look at comparable house prices in your area to get an idea of where the market is.
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While it's worth looking at a graph of recent median home prices, here's the thing: These graphs rarely line up in different locales. You can look at what housing prices have done nationally in recent years and months -- for example, Moody's Analytics predicts a 1 percent increase in home values in 2011, then 4 percent in 2012 -- but that's only the beginning of knowing your local market [source: MIT Center for Real Estate].

Again, look to comparables. Take a look at what local houses were selling for a year ago, six months ago, three months ago and now. Does the line point up or down? If you're in a seller's market, you might tack on an additional 10 percent. In a buyer's market, you might subtract that 10 percent. (If you don't want define the market yourself, explores sites like Trulia.com, which include trajectories of local markets.)

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Also, explore the effect of foreclosures and short sales. One foreclosure in the blocks near you shouldn't sink your sale, but if more than 25 percent of the sales in your area are bank sales, you'll have to reduce your price in order to compete.

You now have the information and skills you need to name a fair price for your home. It's about data aggregation, or taking into account everything you've explored thus far: online calculators, CMAs, perhaps an appraisal, your expertise with comparables and the conditions of your local market. One strong method is to start by naming an extreme low and an extreme high, then using your information to narrow in on the best price.

Once you have it, write this price down and circle it in red pen. If you've been honest and rational, and you've done your homework thoroughly, you should set this price as your emotional baseline. Anything over it is gravy. And if you end up selling below it, you can either shake your head (it might be the market's fault) or kick yourself (the fault might be yours).

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That's because a fair price is only a start. There are reasons a buyer might be willing to overpay slightly for your house, and there are reasons you might need to underprice it. Read on to find out more.

Keep an eye on the market -- you don't want to overprice or underprice your home!
Keep an eye on the market -- you don't want to overprice or underprice your home!
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Imagine this: Prices are decreasing in your local market. You set the price of your house at today's fair value. But two months down the line, when you're dealing with make-it-or-break-it interest, your house is overpriced. You're behind the curve. At that point, if you cut the price to market value, you'll be behind the curve again as prices erode beneath you. And cutting the asking price is a signal of desperation that makes buyers wonder what's wrong with the house.

Chasing declining house prices is a bad, bad place to be, but it's one you can easily avoid by looking into the future and pricing your house accordingly. In a market declining by 1 percent each month, knock 3 percent off your fair price to make the house competitive three months from now.

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However, the same is not true in an increasing market. If you overprice your house, listing it at what you imagine it will be worth three months in the future, you doom yourself to missing the all-important interest in your fresh listing. By the time your price is competitive, your house will most likely have been on the market three months and will look like a tired listing.

You listed a fair price for a standard deal: An agent sells to a buyer who is financed through a bank and plans to occupy the empty house in a couple of months. Almost every word in the preceding sentence costs you money.

Think about the agent. If you offer the house for-sale-by-owner, consider knocking 3 percent off your fair price and pocketing the other 3 percent that would've been the agent's commission. (But also be aware that you'll work for this 3 percent by selling yourself.)

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Another way to sweeten the deal is by offering seller financing or the option to lease. Buyers who are having problems finding a lender might be willing to pay a premium on the price of the house if you offer a way to sidestep bank requirements. You'll need to speak to a good financial advisor and likely an attorney if you hope to offer seller financing. Leasing a house is easier and allows buyers without a down payment to (effectively) apply a couple years' worth of rent to the purchase price of the house.

Offering the option of a fully furnished house might be attractive to some buyers, allowing you to add to the listing price. Also, a buyer who needs a place to live next week is likely willing to pay more for the privilege of quick escrow.

A real estate agent can help draw people to your listing with advertising and open houses.
A real estate agent can help draw people to your listing with advertising and open houses.
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A bidding war is every seller's dream. The best way to get into one is by underpricing your home. If you live in an extremely hot market, chopping 10 percent off the fair price could help your house eventually fetch 10 percent above the same price.

But what if your low price fails to attract the bidders you want? What if only one buyer shows and snaps up your underpriced house at list?

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It's all about traffic. If you choose to underprice, make sure the world knows it. This is an all-in strategy requiring massive upfront marketing. If you're using an agent, make sure the agent is willing to coordinate advertisements and other listing publicity so that when your house hits the pond, it makes a splash big enough to attract many fish.

The fair price of your home takes some things for granted: the paint and floor coverings are in good condition, it's spotless, landscaping is maintained and you've decluttered your space. If you go above and beyond, your selling price can reflect it.

Some ideas include adding space and light, converting an extra room into a home office, boosting curb appeal, tricking out the bathroom and color-coordinating appliances in the kitchen. A quick online search returns hundreds of other suggestions.

But be sure to stay rooted in your comparables. If every house on the market has granite countertops, then this amenity will already be reflected in the fair price you listed earlier (if you don't measure up, you'd have to subtract from the fair price). But if you're truly going above and beyond -- with heated floors or a basement sauna, for example -- then you have room to grow your asking price.

Above all, stay rational and realistic to ensure that you price your home in that sweet spot of efficiency, where, in addition to padding your wallet, you also close the deal.

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Sources

  • Dratch, Dana. "8 tips for pricing your home in a buyer's market." Bankrate.com. (Jan. 1, 2011)http://realestate.msn.com/article.aspx?cp-documentid=13108482l
  • Geffner, Marcie. "How to Price Your Home." National Association of REALTORS®. 2000. (Jan. 2, 2011)http://www.realtor.com/basics/sell/setprice/price.asp?source=web
  • Gray, Liz. "My House is Worth What?" FrontDoor.com. April 7, 2009. (Jan. 2, 2011)http://www.frontdoor.com/Sell/My-House-is-Worth-What/55029
  • Hoak, Amy. "Pricing your home to sell in today's market." MarketWatch. July 19, 2010. (Jan. 2, 2011)http://www.marketwatch.com/story/pricing-your-home-to-sell-in-todays-market-2010-07-19
  • Weston, Liz Pulliam. "10 ways to sell your home faster." MSN Money. April 27, 2009. (Jan. 5, 2011)http://articles.moneycentral.msn.com/Banking/HomebuyingGuide/10WaysToSellYourHomeFaster.aspx?page=1
  • Zillow.com. "How to Value a House." Yahoo Real Estate. (Jan. 5, 2011)http://realestate.yahoo.com/Homevalues/How_to_Value_a_House.html

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