Home Sellers Handbook
Setting a Price
Pricing your home is part art and part science. As marketing experts say, “Your house is worth what someone else will pay.”
So what will someone pay for your home? Usually a buyer will offer to pay roughly what similar homes have recently sold for in your neighborhood. As a general rule, location is the biggest factor in pricing a home. Features such as size, number of bedrooms and bathrooms, fireplaces, porches, and the general condition of your home are also important. You can find the price of homes similar to yours in different ways:
- Multiple Listing Service (“MLS”): Real estate agencies subscribe to this constantly-updated computerized service that lists homes for sale and homes that have sold. It shows homes by price, neighborhood, and detailed features. Because no two homes are exactly alike, a real estate agent is likely to compare your home with many different other homes when determining a price.
- Internet: Many companies are using the Internet for listings, so don’t forget to surf for prices. Some websites provide an estimate of a home’s value based on the county’s property tax records.
- Real Estate Publications: Usually free in newsstands, these flyers also have listings organized by location.
$ Pricing Tip $: What you paid originally for your home and the cost of improvements is irrelevant. When you price your home, only the current market value matters! If the market has slumped since you bought your house, you may owe more on your mortgage loan than you could currently sell your house for.
Why Not Start High?
It seems sensible to price your home higher than the amount you’d be willing to take. Buyers usually offer less than your asking price. However, pricing your home too high can scare off potential buyers.
In a tight housing market—one with lots of buyers and few sellers—you can ask more than you might in an average market or depressed market. But be prepared to drop your price if the buyers aren’t biting.
What could you lose by starting high? First, it may take months to find a buyer willing to pay your price (assuming such a buyer exists). Real estate agents might not spend as much time showing homes that they think are over-priced. Second, you miss out on attracting a larger pool of potential buyers. The more buyers, the better the chance they’ll engage in a bidding war for your home. When two or more buyers are competing for a house, they might even bid more than the asking price! Even if you do receive a high bid on your home, keep in mind that if an independent appraiser finds that the house isn’t worth the bid price, the buyer will have difficulty getting a loan for the purchase price.
The Klines spent $10,000 last year updating their master bedroom and bathroom (new wall paper, plush carpeting, and new tile). They’d like to recover their investment but they know that adding $10,000 to the asking price makes their house more expensive than any other sold recently in their neighborhood. However, they think in the current housing market, they just might get their asking price. Stay tuned to see what offers they get!
Ellen Bower has decided to price her home lower than others in the neighborhood. A similar home in her development is for sale at $177,000. She paid less than $160,000 for her home five years ago and now has priced it at $172,000. Property values have risen in the area, but neither she nor her real estate agent think the market supports the high price her neighbors are asking. By undercutting their price, Ellen thinks potential buyers will be more attracted to her house!
Should You Offer Financing Help to a Buyer?
Remember the early ‘80s when interest rates were as high as 17 percent? It was a tough market for sellers. They often offered to help buyers finance a home. While some still may do so, such financing is less common today. When interest rates are lower, buyers can get good financing terms from traditional lenders.
If you have a hard-to-sell property, however, you might consider a seller-financed mortgage or a contract for deed. With a contract for deed, the buyer would pay you the monthly payments, not a lender. You essentially would be the “lender.” The danger is that you would still be required to make the mortgage payments if the buyer doesn’t. In addition, your mortgage may prohibit you from making this type of arrangement with a buyer.
You can also offer to let a buyer assume a loan, if your loan is assumable. This is a good strategy for attracting buyers who may be able to afford your home, but can’t qualify for a loan through a lender because of a poor credit record or short job history. But again, you may continue to be liable for the mortgage payments. You should strongly consider obtaining legal and financial advice before entering into any financial assistance arrangement.
What if Your House Doesn’t Sell?
Your house isn’t selling. Where did you go wrong? It might not be anything you did. Instead, there could be a number of contributing factors. Maybe it is the time of the year. House sales tend to pick up in the spring and summer months. Or perhaps you need to do something to spark new interest in your home. Try one of these:
- Lower the price. Maybe you’re asking too much. Review the information on pricing your home at the beginning of this chapter.
- Raise the real estate commission. By raising the commission, you might catch the attention of real estate agents and increase buyer traffic.
- Offer a homeowner’s warranty. You might want to consider offering buyers a homeowner’s warranty if your major appliances, electrical or heating system, or central air conditioning unit are older models. If anything goes wrong with these appliances, the cost of repairs will be covered by the one-year warranty you purchase. You can find out more about a homeowner’s warranty through a real estate agent or on the Internet.