Pricing Your Home

Pricing your home properly is easily the biggest factor in determining the success of the sale. It's important to price your home such that you're getting the most you can for the sale while remaining competitive with similar homes in the local housing market. For that reason, the assistance of a licensed real estate agent is strongly recommended. Agents are trained to properly price a home to get the greatest return possible for their clients through a quick and smooth sale.

Home Value is Market-Driven

In general, homeowners are inherently bad at pricing their own homes. Homeowners' personal points of view often play far too large of a role in the matter, and their asking price will often be influenced by factors unrelated to the home's value in the market, such as:

  • How much money they paid for the home
  • The amount of effort/time/money they put into home improvements
  • How well the home suits their needs
  • How much money they need
  • Sentimental value the home holds for them

An agent is able to objectively recommend an asking price that is suited to your home and your local housing market at a particular point in time, based only on factors that will influence buyers' offers.

Estimating Your Home's Value

An agent estimates the value of a home by performing a comparative market analysis (CMA). A CMA consists of first characterizing the seller's home. This provides a relatively detailed description of the home and includes the home's size, features, overall condition, and many other characteristics. This gives the agent an outline of what makes up the home.

Next, the agent will research past homes sales in the neighborhood surrounding the seller's home. In particular, the agent is seeking information on the sale of homes similar to the seller's that occurred recently. This information is used to formulate a general estimate of the price range the seller can expect for his or her home. Homes more similar to the seller's are weighted more heavily than those less similar. This approach is based on the reliable assumption that the price of the recently occurring home sales were market driven, and therefore, the market will drive the seller's home price similarly.

Finally, because no two homes are exactly alike, the agent will adjust the estimated value of the seller's home to account for any differences between it and the other homes recently sold in the area. This will account for many factors ranging from new home improvements to changes in the market over time.

As with any valuation method, it is only an estimation and the final sale price is determined by the market, but a CMA is a useful tool because it gives a seller an informed prediction of what that market price is. This information can then be used to price the home accordingly while taking into account any other factors, such as the need for a quick sale.

The Dangers of Overpricing Your Home

While the disadvantages of under-pricing your home are obvious, many homeowners don't realize that over-pricing is a disadvantage as well. Many sellers justify over-pricing their homes in one of two ways. Both of these approaches generally cause the home to sell for less than it would have if priced properly from the start:


"I'll price it high. Buyers will make low-ball offers anyway, so a higher price means I have room to bargain."

This approach may seem to make sense, but in reality, it actually hurts the sale of a home. When a seller adopts this strategy, he or she loses out on offers. In the housing market, where there are a lot of homes for buyers to sift through, buyers will often eliminate potential homes based on various criteria to simplify their search. That means many will pass on a high-priced home immediately because of the price tag, never even initiating contact with the seller to find out that it's negotiable. This effect is even worse given that most searches are done online, where buyers can input an upper price limit. A few thousand dollars in asking price can mean a huge difference in exposure.

By pricing the home fairly from the start, you will generate more exposure and interest for your home, which means more potential buyers walking through your door, and ultimately, more offers to choose from.

Testing the Waters

"I'll price it high. If I don't get any offers, I'll lower it in a month."

This approach also seems like it could work but instead usually results in a lower sale price for the homeowner. This is for two primary reasons.

First, listings always make a big splash when they're new to the market. Online search system are set up to notify buyers of new listings, agents are always looking for new properties their buyers haven't seen yet, and people feel there's the possibility of a great catch when they see it when it's still fresh. Essentially, everyone wants to see what the seller has to offer. For all of these reasons, a home enjoys the majority of its exposure and excitement when it's first listed. If the seller has set an unreasonably high asking price, buyers that were eager to see the home will leave disappointed, and the seller is wasting valuable excitement over the home.

Unfortunately, the buzz generally dies quickly. When the seller finally realizes that the home isn't getting offers near the high asking price and decides to lower it, it's often too late. The home no longer has its new listing appeal or exposure, and many have already seen it and moved on. Further, buyers and agents often assume that if a home has been on the market for a while, there must be something wrong with the home, the seller isn't fielding many offers, the seller is becoming desperate, or a combination of the three. As a result, buyers are more willing to drive a hard bargain.

By setting the home at a reasonable price initially, you're more likely to generate buyer interest when the home is practically marketing itself and buyers are motivated to act quickly.

Allotting Time for the Sale

Naturally, competitively priced homes can be expected to sell more quickly than homes that are not price competitively. Therefore, when deciding on a listing price, the amount of time you can wait to field offers will be a factor. For those that need a quick sale, a low listing price may be necessary.

Be Wary when Pricing Your Home

Unethical agents "buy" listings by convincing sellers that their home is worth more than it actually is and claiming that they can sell it for that higher price. Naturally, if two agents say they can sell a home for $500K, and a third says he can sell it for $550K, most unwary homeowners will simply choose to list with the third agent. Unfortunately, no agent can promise a sale price, and the seller will only be disappointed when the same agent advises them to lower the asking price because there are no offers. This issue can be avoided by working with agents from a reputable institution and even getting multiple CMAs if you aren't sure.