Real Estate
Tips for Home Buyers and Sellers
In this cooling market, sellers have to find the pricing sweet spot and work harder to reel in a buyer, who has more homes to choose from and more bargaining clout.
By Pat Mertz Esswein, Associate Editor, Kiplinger's Personal Finance
July 5, 2006
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First the good news for those of you trying to sell a house: Home prices across the nation still are rising, on average, despite a cooling real estate market.
Now the bad news. Home sales in May were the weakest they've been in four months and the number of homes on the market hit a record 3.6 million, according to the National Association of Realtors. Translation: Houses are sitting on the market longer. So if you don't want a "For Sale" sign hanging in your yard for months -- even a year -- you've got to set the right price on your home.
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To do this, you should combine an objective evaluation of your property with a realistic assessment of market conditions. In any market, you're more likely to benefit by determining a fair value and sticking close to it than you are by asking an unrealistic figure and waiting for buyer response to sift out the "right" price. And in a buyer's market, setting the right price from the outset may be your only effective strategy.
Sellers: Price it right
Prepare for bargaining. You could set a fair price and then refuse to bargain. But that would deter all those people who hate to pay full price for anything and like to feel they're "getting a deal." Better to leave a little room for negotiation by asking slightly more than you expect to get, say, 5% to 10% above appraised value. If sales are brisk in your area, you might just end up getting top dollar.
Overpricing can cost you. Many sellers don't realize that overpricing can result in their getting less for their house than if they priced it right initially. The reason: Knowledgeable agents and buyers often won't bid on a severely overpriced house. By the time the seller wises up, many of his best prospects already will have bought other houses. An overpriced house can end up being sold for less than it would have a few months earlier.
Some sellers who don't have a deadline for selling will cling for a long time to their overly high asking price. They probably won't get it, and even if they do manage to sell a year later for the original price, it will be because a rising market finally caught up with their price.
They may think that they were smart to hold firm, but in fact, they were naïve, ignoring the time value of money. In the year (or even six months) that they clung to their high price, the rest of the real estate market probably wasn't standing still. The next home they buy may have gone up in value by at least the same margin and possibly more. And if interest rates are rising, their mortgage may cost more. Even if they don't buy a replacement home, they have lost the earnings they would have received on the invested proceeds of an earlier sale -- say, 5% per year if conservatively invested and possibly much more if the money were invested in tax-free bonds or a rising stock market.
Consider the agent's motivation. If a competing agent suggests that you list your home for an amount that sounds too good to be true, it probably is. He or she may just be trying to get the listing, knowing that after the house sits on the market for awhile, the agent will suggest a new, lower price more in line with what other agents suggested in the first place.
Conversely, underpricing can deprive you of money that's rightfully yours. Unless you are in a big hurry, aim for full market value. Avoid overeager or unethical agents who suggest a price that will assure them a quick and easy sale -- one that won't require an investment of time, effort, or money on their part.
Study the comparables. To price your home right, shop your competition. To be comparable, a house that sold has to be close to yours in age, style, size, condition and location. Try to find at least three homes (comparables) that have sold within the last six months. The more current they are, the better. You need to know: How long did each one take to sell? How much of a spread was there between the original asking price and the actual selling price in each case? Is that the normal differential? Has anything occurred to warrant setting a higher margin?
Get an appraisal. If your idea of what your property is worth and the listing broker's recommendation don't coincide, an appraisal may be in order. An appraisal is an especially good idea if you are attempting to sell your home yourself. The $250 to $500 it will cost is money well spent. An appraisal prepared by an experienced, licensed professional comes as close to an objective evaluation as you can get.