Choosing a listing price when selling your house requires strategy. The listing price is a critical element of the saleability of your house and has the ability to attract potential buyers or turn them away.
A successful pricing strategy will not only attract potential buyers to visit the home but also cause them to put an offer in writing that allows you to net the highest dollar possible.
This is one of the first questions most sellers ask themselves, “Is the agent able to show me what buyers are willing to pay for a house like mine in today’s market.”
There are a few different methods that are used to value a house. The main one REALTORS®, appraisers, and tax assessment organizations use is the Comparative Market Analysis (CMA) which asks that exact question, what are buyers paying for that type of house in that area.
Other valuation methods used by various industries include:
- Land appreciation vs structure depreciation
- Rebuild construction cost
- Land value
- Better & higher use
As we stick to the CMA for the vast majority of residential units (including condos) buyers and sellers often notice distinct differences in price from area to area and amongst housing styles, even when build by the same developer in the same time frame or being the same size. Studies have shown that the following criteria can affect housing prices:
- Location ± 35%
- Type ± 11%
- School ratings ± 10%
- Style ± 9%
So let’s discuss the 3 pricing strategies we review with home sellers and how they work. For the purpose of this example let’s assume a house is worth $525,000
In the traditional method, you could list the house at $549,900, just about 5% over the value of the house. If the house doesn’t sell in the first 30 days or attract enough potential buyers you might reduce the listing price by $10k (about 2%) to $539,900 to see if it generates more interest. If that does not stimulate more interest or offers you might reduce it a bit more to say $529,900, and continue to do so until you find the goldilocks zone.
This method is good for “testing the waters” or in a market where there has been little activity leaving the potential price a buyer could pay questionable.
Little Bit More Method
In a more active or flat market, the little bit more method might have you set the listing price around $527,900 (just a 0.5-1% higher). When people come to see your house they will be excited, they will know from recent sales that the house is well priced and should generate an offer in the first week or 2 that are very close to the listing price.
The reason for this is the buyer’s REALTORS® consulting with them will point out the relative newness of the house on the market causing them to believe the seller won’t take much less, especially with a lot of interest.
Bid Up Method
Very common in hot markets the bid up method does work in any area or market that has very recent comparables at the value of the house. BY listing a bit lower than perceived value, say $497,000 (about 5% below) all the potential buyers will see this is great real estate VALUE. While the house might not be the right for every family and may attract a lot of interest and showings you should end up with 2 or 3 potential buyers who may bring offers. During a multiple-offer scenario, these potential buyers will bid up wondering “how much more do I have to offer to beat the other offers to be the winning bid.”
Be sure to discuss these strategies with your REALTOR® before choosing one and their success depends on the market and neighbourhood. A relatively slow market or area where housing styles and types vary widely may require the traditional method, whereas a hot market may see buyer reluctance avoid the bid up method. These strategies also vary based on buyer demand and the volume of recent sales activities.
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