How to Set a List Price for Your Home
Setting the list price for your home involves evaluating various market
conditions and financial factors. During this phase of the home selling process,
your REALTOR® will help you set your list price based on:
- pricing considerations
- comparable sales
- market conditions
- offering incentives
- estimated net proceeds
Pricing Considerations – Find a Balance Between Too High and Too Low
When setting a list price for your home, you should be aware of a buyer’s
frame of mind. Consider the following pricing factors:
If you set the price too high, your house won’t be picked
for viewing, even though it may be much nicer than other homes on the street.
You may have told your REALTOR® to "Bring me any offer. Frankly, I’d
take less." But compared to other houses for sale, your home simply looks too
expensive to be considered.
If you price too low, you'll short-change yourself. Your
house will sell promptly, yes, but you may make less on the sale than if you had
set a higher price and waited for a buyer who was willing to pay it.
TIP: Never say "asking" price, which implies you don't expect to get it.
Price Against Comparable Sales in Your Neighborhood
No matter how attractive and polished your house, buyers will be comparing
its price with everything else on the market.
Your best guide is a record of what the buying public has been
willing to pay in the past few months for property in your neighborhood.
Your REALTOR® can furnish data on sales figures for those
comparable sales and analyze them to help you come up with a suggested listing
price. The decision about how much to ask, though, is always yours.
Competitive Market Analysis (CMA): The list of comparable
sales a REALTOR® brings to you, along with data about other houses in
your neighborhood that are presently on the market, is used for a "Comparative
Market Analysis" (CMA). To help in estimating a possible sales price for your
house, the analysis will also include data on nearby houses that failed to sell
in the past few months, along with their list prices.
A CMA differs from a formal appraisal in several ways. One
major difference is that an appraisal will be based only on past sales. Also, an
appraisal is done for a fee while the CMA is provided by your
REALTOR® and may include properties currently listed for sale and
those currently pending sale. For the average home sale, a CMA probably gives
enough information to help you set a proper price.
Formal Written Appraisal: A formal written appraisal (which
may cost a few hundred dollars) can be useful if you have unique property, if
there hasn't been much activity in your area recently, if co-owners disagree
about price or if there is any other circumstance that makes it difficult to put
a value on your home.
TIP: If you do order a market value appraisal, make it clear you don't need
an elaborate, or full narrative report, i.e., the kind that's complete with
photos of the house and neighborhood. Floor plans and a site map is sufficient
in most cases.
Market Conditions – Is it a Buyer’s Market or a Seller’s Market?
A CMA often includes a Days on the Market (DOM) value for each comparable
house sold. When real estate is booming and prices are rising, houses may sell
in a few days. Conversely, when the market slows down, average DOM can run into
Your REALTOR® can tell you whether your area is currently in a
buyer's market or a seller's market. In a seller's market, you can price a bit
beyond what you really expect, just to see what the reaction will be. In a
buyer's market, if you really need to sell promptly, offer an attractive bargain
If You Price High, Set a Schedule for Lowering the Price
Some sellers list at the rock-bottom price they'd really take, because they
hate bargaining. Others add on thousands to the estimated market value "just to
see what happens." If you want to try that, and if you have the luxury of enough
time to feel out the market, sit down with your REALTOR® and work out
an advance schedule for lowering the price if need be.
If there haven't been many prospects viewing your home after three weeks, you
may need to lower your list price. If that doesn't bring any prospective buyers,
you may need to lower your list price again. Plan on doing that regularly until
you find a level that attracts buyers. Make a written schedule in advance,
before emotion takes over and you're tempted to dig your heels in.
Offering Incentives to Hasten a Sale
Sometimes cash incentives are as effective as lowering the price, especially
in the lower price range where buyers may be "cash poor." You may offer to pay
some or all of a buyer's closing costs and discount points required by the
buyer's lending institution.
If you haven't had much traffic through your house and you’re in a hurry to
sell, you may want to add the offer of a bonus to the selling broker, in
addition to their commission. An example of the wording for such an offer may be
"to the broker who brings a successful offer before Christmas."
Estimating Net Proceeds
Once you’ve been given an estimate of market value by your
REALTOR®, you can get a rough idea of how much cash you might walk
away with when the sale is completed. This can be particularly useful when you
start looking for another home to buy.
To estimate your net proceeds, from the estimated sales amount, subtract the
applicable costs in the three sections outlined below: seller’s costs,
buyer’s/seller’s costs and closing costs.
Seller’s Costs: Subtract the following costs as
- payoff figure on your present loan(s)
- broker's commission
- prepayment penalty on your mortgage
- attorney's fees
- unpaid property taxes
Buyer’s/Seller’s Costs: Additionally, your
REALTOR® can tell you whether local customs or rules dictate whether
the buyer or seller pays for the items listed below. Subtract the following
costs, as applicable.
- title insurance premium
- transfer taxes
- survey fees
- inspections and repairs for termites, etc.
- recording fees
- Homeowner Association transfer fees and document preparation
- home protection plan
- natural hazard disclosure report
Closing Costs: As far as closing costs are concerned, you
and your eventual buyer may agree on any arrangement that suits you, no matter
what local practice dictates. Your REALTOR® will assist you in
estimating what your final closing costs will be.