The vast majority of homes sold in the Houston area go through the Houston Association of REALTORS’ MLS, which means a real estate agent was involved in the transaction. For each home listed, the REALTOR had proposed a price at which to list. When you list, how do you evaluate the REALTOR’s proposal?
You want to use Goldilocks pricing. Not too high because you will make the home sit longer, and possible buyers will start wondering what is wrong with the house. Not too low just to get a quick transaction. But, price it just right. Factors you may want to consider in evaluating the REALTOR’S proposed price are:
- The market sets the price. You and your REALTOR are not driving the process. The market is. So, what you paid for your house, how much you have spent on upgrades, or how much you need to net from the transaction have no impact on a possible selling price.
- Supply and demand will impact the price. A market equilibrium exists if there is a 6 or 7 months’ supply of homes on the market. The number is calculated using homes for sale divided by number of homes sold in the prior 12 months. If there are 50 homes on the market and 100 sold in the prior twelve months, there exists a 6 months’ supply. If there are fewer homes on the market, it is generally helpful to the seller in pricing the home. And, when there are more homes on the market, it is generally helpful to the buyer.
- Prices are very local. In calculating the months’ supply, one would want to use your neighborhood or subdivision. And, if there is a significant difference in size or pricing in the neighborhood, the calculation would need to be modified for relevant or comparable properties.
- Compare your home to the homes that are for sale. You can search homes for sale in your neighborhood and study how relevant the homes that are for sale are to your home. You can also visit open houses. The relevant homes you select are the competition, and your home will need to be priced in line with the competition. Relevancy can be determined by relative:
- Size – For both the home and the lot. The larger the size, the larger the price.
- Number of bathrooms – The more bathrooms, the higher the price
- Location – Are the homes on a corner (higher), busy street (lower), views (the better, the higher the price), near noise (freeway or a nearby entertainment area will reduce the price.)
- Age – Many neighborhoods in Houston are mixed with older and newer homes. Your relevant homes should be from the same generation.
- Condition – Well maintained homes will obviously improve the price comparison.
- Flooding and foundation issues – In Houston, many homes have had water in the structure. A history of water will reduce the price. The status of the need to repair the foundation will impact the price.
- Quality of remodeling – Poorly done remodeling or additions will reduce the asking price.
- Uniqueness – A home that is different from others in the neighborhood (e.g., all bedrooms down and living area up, or a much larger home than others in the neighborhood) may make a home more difficult to sell, lengthen the selling process, or reduce the possible selling price.
- Staging can help. Having a professional stager or using a list of steps your REALTOR provides (e.g., plant fresh flowers and put mulch in the flower beds) can both speed the sale and improve pricing.
- Appraisals can be a limit on the price. Even in an excellent market for the seller, most homes will need to be financed. As a result, the appraisal for the bank may limit your ability to pursue a higher asking price.
When you select a price, there are three basic theories:
- Odd pricing – Pick a price like $236,475. It will make people curious and get a conversation started.
- Grocery or gasoline pricing – Price your home at $299,999 as it may sound less expensive than $300,000.
- Internet pricing – Many homebuyers or their agents use round prices to search for homes. If the round numbers are $290,000 to $320,000, they are going to miss your house priced at $289,900. With all the technology in use today, I prefer the round or internet pricing theory.
Although you can rely on your REALTOR to propose reasonable pricing, you will want to use these guidelines to evaluate their suggestion. Good luck.