Ah, the agony!  “What price should we list our home at?”  “We want to get as much as we can.”  “If the Smith’s house sold for that much, certainly ours is worth more.”  “I’m not going to give this thing away.”  “Our house is much nicer than that one – it ought to be worth a lot more.”  “Well, let’s just try to get more and see what happens.”  “We just don’t want to leave money laying on the table.”  “Shouldn’t we just go with the Realtor that tells us the highest figure?”  “Maybe one of those dumb rich people from California (or wherever) will come in and pay a higher price because they don’t know our market.”  These are just some of the familiar laments about deciding how to price a home for sale.

I’ve had customers tell me on a listing interview, “Look, we have to net as much as we can so that we can afford to fix up the new house we’re buying.”  Well, I certainly understand that everyone wants to net as much as they can.  But the truth is, what you may want really has nothing to do with what the home is going to sell for.  The sale price of any home depends on many factors – but not what you want to net.  Market conditions, i.e., supply and demand, recent comparable sales, interest rates, and competition – along with things like location, amenities, features, physical condition, cleanliness and general showing condition will define what price a home sells for.

The reality is that when you price a home for sale too high for market conditions it can and often does result in the seller netting less money in the end, not to mention the frustration and anxiety that they most surely will experience.  This is a fact that is supported by mountains of data and thousands of disappointed people.

When the inventory of homes for sale is high – a buyers’ market exists.  In a buyers’ market, buyers and their agents have no urgency to buy and can take their time looking around and comparing values.  They also know what the comparable sales numbers are.

One of the realities to keep in mind is that chances are very good that the buyer will be financing a portion of their purchase.  Therefore, the lender is going to require that the buyer pay for an independent appraisal prior to final loan approval.  Though a good appraiser may be able to arrive at a more `accurate’ value than the listing agent – both professionals use the same comparable sales data to arrive at the property’s current value and usually arrive at about the same figure.  Of course there is a chance of finding a cash buyer – but many of those folks have become aware of the advisability of also having a professional appraisal done.  So, even if you have accepted an offer at a higher price, a lower appraised value is going to cause the deal to go south.  Most buyers will walk away with their earnest money and move on to another property unless the sellers are willing to lower the sale price to the appraised value.  Very few buyers will be able and willing to come up with any additional cash to give to the seller above an appraised value.

Smart sellers give consideration to having a professional appraisal done in advance to help determine the current market value of their home.  The cost of the appraisal will vary with the size of the property, but typically will be about $250 to $500 - a relatively small amount of money in the larger scheme of things.

Be aware that some real estate agents may be the type to purposely or knowingly suggest that a home will sell for more than it is likely to - just to get the listing.  If a seller interviews three real estate agents and two of them suggest a list price of about $220,000 for example, and the third agent boasts that she can sell it for $265,000 – be careful.  There is a good chance that the third agent is trying to “buy the listing.”  They know the house won’t sell for that amount but they just plan on waiting the sellers out for a series of price reductions.  Whose best interest is that behavior in?  Sometimes an agent will try to convince sellers to list at a more realistic price but cannot persuade them with the evidence, and the agent still takes the listing.  Once again, who is being served?

One other thing to keep in mind, for whatever period of time the property does not sell because it is overpriced, the owner will continue to make payments on the house, taxes, insurance, utilities, and maintenance.  How does that affect the net profit?

What is the motivation for selling?  Is there any urgency?  How long can you stay?  A job transfer, having a new home built, under contract for another home already, just want to get out of this neighborhood, need to downsize, need a larger home, getting divorced – there are many different levels of motivation that may be present.  An objective evaluation of your motivation has to be made.  Selling and buying a home is unavoidably an emotional process.  Try to honestly evaluate what is going on.

What happens if you try the higher price and the home doesn’t sell in 30 days, or 60 days, or 90 days, or longer – or ever?  Do you reduce the price?  How much?What if it still takes another 60 days, or 90 days?  Do you reduce it again?  How many buyers did you miss that might have purchased at the lower price?  Have they moved on by now – already bought another property?  Has the competition increased?  Have interest rates moved higher, reducing the number of qualified buyers?

Something that seems to happen but is difficult to quantify or even prove is that if a property comes on the market and it is clearly overpriced, some people will pass judgment about the sellers’ ability to be reasonable about all the aspects of the transaction.  Not just the sale price – but their reasonableness in negotiating about repairs, close of escrow date, amount of earnest money, etc., etc.  As a result some potential buyers will not even try to make a reasonable offer to purchase because of anticipated “difficult sellers.”

Take a look at the following graphical illustrations of typical comparable sales data on homes listed for sale in a Multiple Listing Service (MLS) for a given subdivision.  All of the homes are of comparable size and have comparable amenities.  There are some minor differences in the properties, and naturally some have better views, some have pools, etc., etc., so this illustration is not an exact science – nor does it come close to what a real appraisal would provide.  But it is amazing how this relationship between the numbers can be demonstrated on almost any set of homes sales data in any active subdivision.  These data were for townhouses in Tucson National with 3 or more bedrooms, 2 or more bathrooms in the Tucson Association of REALTORS^® MLS on June 28, 2006 at 3:00 pm.  Have your agent run current numbers for your property, in your subdivision.

COMPETITIVE PRICE LINES

Recently Sold (within the past 6 months)

Each mark indicates the actual selling price (in thousands) of a property in the competitive range.

Currently For Sale (active listings)

Each mark indicates the list price (in thousands) of a comparable property now on the market.

Did Not Sell (expired listings, withdrawn release listings)

Each mark indicates the final list price (in thousands) of a property offered for sale but did not.

Yet another, perhaps more “telling” way to look at the data for the same properties is to look at the price per square foot ($ / Ft²) on the same type of charts.  The reason this may be more useful is that there are often significant variations in the square footage size - even in otherwise comparable properties in the same subdivision.

COMPETITIVE $ / Ft² LINES

Recently Sold (within the past 6 months)

Each mark indicates sold price in $ / Ft² of a comparable property.

Currently For Sale (active listings)

Each mark indicates list price in $ / Ft² of a comparable property now on the market.

Did Not Sell (expired listings, withdrawn release listings)

Each mark indicates final list price in $ / Ft² of property listed but did not sell.

Which data set would you want to be in?  This is reality.  The bottom line:  if you want your home to sell in the least amount of time and for the maximum return possible, you have to be realistic and competitive.

DISCLAIMER

John P. Hale is owner and Designated Broker of Touchstone Residential Realty, Inc., 2485 West Tom Watson Drive, Tucson, Arizona 85745.  He has been a residential real estate agent in the greater Tucson Metropolitan area since 2000.  In addition to being licensed as a Broker rather than a salesperson, John holds the following designations awarded by the National Association of REALTORS^®:  ABR – Accredited Buyer Representative, ASR – Accredited Seller Representative, CRS – Certified Residential Specialist, and GRI – Graduate Realtor Institute.  And, John is among the very few that have been named, MRE – Master of Real Estate by the Arizona Association of Real Estate.