You’re selling your house, condo, or any real estate, and you want the highest possible price … so how do you set your listing price to attract bidders?
Price it too high, and you’ll scare off potential buyers.
Too many people overprice their listings and as a result, lose more money than they make. My friend did that, and here’s what happened.
My Friend’s Costly Mistake:
Last January I appraised her property with an estimated value of $360,000. I used five comps and looked at listings, too. So it was a well-researched appraisal.
She listed it in January at $399,000, $39,000 or 10.8% higher than appraised value. It sat there for nine months with few showings and no offers.
Finally, she just now got an offer for $347,500, $12,500 below market value in January 2013.
By pricing it too high, she carried it for nine months, incurring (and losing money on) mortgage interest, real estate taxes, HOA dues, utility and landscaping expenses. She also lost plenty of sleep, worrying about when she’d sell.
Ultimately, when she got an offer of $347,500 — $51,500 or 12.9% below her asking price — she was desperate and too afraid to counter, thus she accepted the first offer she got. Sadly, today’s market value is $375,000, so her loss is even worse.
The Magic Formula
So is there a magic formula for pricing your property?
Yes, there is!
Most MLS systems calculate the “median sale price as a percent of list price.” In our market over the last year, that number is 96.8%.
So take your appraised value and divide it by that ratio. In my friend’s scenario:
$360,000 / .968 = $371,900
Had she listed her property competitively at $371,900, she would have attracted more potential buyers and likely received an offer much sooner. She may have even had a bidding war.
When you overprice your property, selling agents who show your property in the beginning lose interest after a while. Your listing gets stale, agents don’t show it anymore, and in the end, you lose money.
If you use the right ratio in listing your property, you’ll attract more prospective buyers and you might even get a bidding war, driving your sale price higher.
Naturally, if you’re in a rapidly appreciating market, you can overprice and wait for the market to catch up, but you still run the risk of winding up with a stale listing that agents won’t show. And you lose money on carrying costs.
Obviously, everyone wants to sell real estate for the highest price. But if you’re in a declining market, you should price UNDER market value to sell quickly, otherwise you’ll be chasing the market downward. I learned that lesson the hard way in 2008 — it was an expensive and painful lesson to learn.
Posted October 27, 2013
Kay Van Hoesen represents private-party investors, equity groups, hedge funds, and mortgage lenders. She is founder, senior appraiser and owner of Certifax, Inc. with local appraisal experience since 1986. She and her staff have developed more than 35,000 appraisals, consulting on more than $7 Billion in real estate.
Kay is a certified real estate appraiser in South Carolina and North Carolina as well as FHA-approved. She is also a licensed real estate broker in South Carolina, a participating member of the National Association of Realtors, the Coastal Carolinas Association of Realtors, and an Associate Member of the Appraisal Institute.
Every month Kay Van Hoesen identifies underpriced real estate opportunities for investor buyers.
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