7 Mistakes to Avoid when Pricing your Home to Sell
In our experience selling homes, we often find that a person's perception of their home's value often differs from the reality of the marketplace. There are number of reasons for this, from psychological factors to simple misconceptions about market value. In this article we will discuss these issues as well as how best to determine an accurate selling price.
Home Seller's Top 7 Pricing Mistakes:
1.) Not being objective
One of the first explanations of the disconnect between real and perceived value is simply human nature. Outside of family, friends and pets, our home is quite possibly the most difficult thing in our lives to be objective about. We likely have more emotional connection to our home than only other inanimate object. Sure, some guys might claim it would be their car, truck, motorcycle, boat or flat-screen HDTV. But when you factor in the monetary investment that the home represents, that usually bumps the home into the number one position in importance. When looking at our own homes we tend to play up the positives and overlook the negatives. When looking at other people's homes, whether they be recently sold comparables, competing homes on the market, or homes one is considering purchasing, we tend to do the opposite. The goal is to try to view your home through the eyes of a prospective buyer. This is very difficult to do, so it's best to just look at the cold hard facts, i.e. the numbers. But what numbers? Where do you get them? How are they derived? We'll get more into that later.
2.) Depending on online home valuations
Previously we wrote about online home valuations, and how misleading they can be. They can be fun to play with, but they're simply not accurate. They can be off 25-30% or more, easily skewing the real value by hundreds of thousands of dollars in some cases. They're brain-dead number-crunching computers that don't know the Intown Atlanta market. You can read the full content of that article here. So with that out the window, many homeowners turn to other methods to seek the real scoop? Here's where we often find misconceptions.
3.) Looking at asking prices verses sold prices
Sellers often tell us their home is worth "X" because they "know the prices in the neighborhood." But they know what prices? Do the know the actual sold prices, or do they just know the asking prices? When asked how they know these prices, typically they answer that they pulled flyers of homes for sale, or that they searched their neighborhood for homes for sale online. Of course, all that tells you is the asking price. It should go without saying that asking prices can differ dramatically for selling prices. Consider that statistically, in current market conditions, half of the listings you see for sale fail to sell. Typically that means they were overpriced, (assuming the home was given the proper exposure and a reasonable time to sell). If no buyers in the marketplace wanted to buy a home at a given price, then by definition, the home is above market value. Then consider that many homes that do sell were sold for a price substantially lower than its asking price. Perhaps you pulled a flyer when the home was first listed, then the home sold months later after multiple price reductions. Even if you knew the last listing price, what you usually don't know is the sale price. Where can you find the prices at which a homes have actually sold? Hang on, we'll get to that.
4.) Believing the "He said, she said"
Another thing we hear is something like "I heard that home sold for X." Surely I don't need to point out the fallacy of pricing by the rumor mill, do I? You might think it's believable when it comes form a trusted source, but most home sellers are understandably private about the selling price of their home. If a nosey neighbor does ask, many (most?) home sellers, shall we say, embellish their selling price. The phrase "trust but verify" comes to mind.
5.) Depending on verbal advice without seeing the evidence.
Sometimes we hear, "An agent told me I could get X for my home." This is when I recall images of some TV lawyer objecting, "hearsay!"
hearsay | noun information received from other people that one cannot adequately substantiate; rumor Law - the report of another person's words by a witness, usually disallowed as evidence in a court of law
It doesn't matter what any person says, it only matters what the evidence says. Any time an agent offers an opinion on price, always ask to see the evidence - a comprehensive Comparative Market Analysis or CMA. It amazes me that many agents will give a price opinion without providing a CMA. Some agents may have the well-meaning but ultimately harmful human tendency to tell you what you want to hear, rather than the cold, hard facts. Other agents may have less scrupulous reasons for telling you what you want to hear - they just want to get your listing. But why would an agent want to list your home at a price where it wouldn't sell? A number of reasons:
a.) Competition. The agent may know (or think) that you are considering using another agent to list your home. They know many sellers will list with whoever tells them the highest price, which can be huge mistake for the seller. So an agent might tell you the high price so you'll select them versus the competition. This is a tactic known in the industry as "buying the listing." Their advice may change down the road after you've been listed with them a while and aren't generating any significant buyer activity.
b.) Buyer leads. Some agents will take an overpriced listing just for the buyer leads. From the marketing exposure of your house (online, yard sign, flyers, etc) an agent will get inquiries about the property. If those buyers decide your home is overpriced, the agent can then show them other listings. If the agent has given up on hope that your home will sell at it's current price, or that you will reduce your price to where it needs to be, the agent may still keep your house on the market as a way to get buyers for other listings! This is a terrible breach of the agent's fiduciary responsibility to the seller, but it happens.
c.) Advertising. Some agents just want as many of their signs in yards as possible. Everybody notices when a new "For Sale" sign goes up in their neighborhood. That's when you pull the flyer or go online to find the price, right? Fewer notice when the sign goes away.
Did you choose your agent because you saw their signs around your neighborhood? Did you follow-up on all of those listings and find out how many actually sold, and for what price? Probably not. Is this the same agent who gave you a price opinion without the evidence (CMA) to back it up? Hmmmm.
6.) Thinking that their re-fi appraisal shows true market value
We've also heard some sellers say, "I know my house is worth X, I have an appraisal!" Two questions always arise when I hear that; when was the appraisal done and for what purpose? Typically the appraisal was done for a refinance, and often it's already outdated. Although they're not supposed to, some appraisers tend to be a little more generous with their valuations if the appraisal is being done for a re-fi versus a purchase. Also, in a changing market, it's best if the comparable homes used in any valuation were sold within the preceding 6 months. Beyond that time period, they may not reflect current market conditions.
7.) Thinking that tax assessment value equals real market value
Some people will look at their property tax assessment and assume that value is actual market value. After all, in some counties it's actually labeled "Fair Market Value." However, in Atlanta, tax assessed values are notoriously inaccurate. I'm sure you've read multiple stories in the press where homeowners are appealing their tax assessments because they believe they are two high. In other cases, particularly when substantial renovations have been done, they can be too low. Tax assessors don't come out to each property and inspect both the internal and external factors when they come up with their assessments. Instead, the assessment is typically performed on desktop valuation software. Often, the value was set when the property was purchased, then blanket adjustments are applied to all homes in the area as time goes on while the property itself is never given a second look. The bottom line is, tax assessments are simply too unreliable to be used as a guide when pricing a home to sell. So, where can I get accurate pricing information? Well, one way is through your county tax records. While their tax assessments may be inaccurate, they do have on record the last price at which a given property has sold. The downside is that they typically are slow to update these records, so you may not be able to find the latest comps, and in a changing market, recency of data is key to accuracy.
comp | informal, noun real estate industry slang term, short for "comparables", meaning properties similar to the subject property that have recently sold
A real estate agent who specializes in your neighborhood has access to more recent comps via the MLS system. An agent providing a CMA for your property should choose 4 to 6 similar properties which have sold, preferably within 6 months and within your neighborhood. Only when there are not enough similar homes have sold within that time period or neighborhood should comps outside of those guidelines be used. From that list of similar recently sold homes, adjustments can be made for differences between the comps and the subject property (your home) to establish a reasonable estimate of market value, and in turn, a list price which will get your home sold. Of course, no system is perfect, and any estimate of sales price is just that; an estimate, though hopefully an educated one. Though any agent can slap together a list of comps, accurate CMAs are difficult and take considerable time to produce. One complication is the great diversity of homes in the Intown Atlanta and Buckhead neighborhoods. The same variety that gives our neighborhoods their rich character also makes it difficult to pinpoint values. In a suburban "cookie cutter" neighborhood where most homes are very similar, it's easy to just take an average of recently sold homes. But in our neighborhoods, virtually no two homes are the same, making it difficult to make adjustments for intangibles. Another problem is that when looking at comps, one is always looking in the "rear view mirror" and it's difficult to accurately predict the short-term future of any market. The bottom line is, the market will determine the selling price. Part of our job, as your real estate consultant, is to estimate that price as closely as possible. To get a detailed CMA for your property, click here.