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The Price of Homes

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June 4, 2014: Last week I was out showing a client homes and he asked me if I also list homes for sale.  I was surprised he didn’t know that, but I understood where he was coming from.  My web site is SLCHomeBuyer.com, and I do represent a lot of buyers.

My business has often been heavier with buyers than sellers, but I’ve always listed homes for sale.  I’ve also been selling homes long enough now, that some of the buyers have now become sellers and some of them buy other homes.  So yes, I represent both buyers and sellers and sometimes the buyers are also sellers.

Selling a home is a process.  It can be done with little preparation if that’s how you want to approach it, but that typically results in the home selling for less.  When someone knows that they will be selling their home in advance, and is willing to commit the time and/or money to prepare their home for sale, the result is usually a higher sale price for the home.

Before you start the preparation process, it makes sense to contact me to get a rough idea of how much your home is worth, and to help you decide what you should do to prepare your home for sale.  Then once your home is prepared for sale we can determine an exact price to list it at.

Pricing a home for sale is the most important step in selling a home.  If the seller doesn’t want to make any improvements to the home, that can be overcome by pricing the home accordingly.  Every home will sell if the price is right.

The right price or “Fair Market Value” is an estimate of the market value of a property based upon what a knowledgeable, willing and unpressured buyer would probably pay to a knowledgeable, willing and unpressured seller.  That’s the price a home should be listed at because it will typically sell faster and for more.

When a home is listed for sale at a price above Fair Market Value, buyers might come to look at the home, but they don’t usually make offers.  I’ve heard many sellers say that they want to “test the market” and “if a buyer likes my home, they’ll just make a lower offer”.  In my experience, that lower offer almost never comes until later after the price has been reduced and the home has been on the market for a while.

I’ve represented many buyers and sellers during my career and I’ve helped many buyers buy homes below market value, but I’ve rarely been able to sell a home for more than market value.  I’ve given this a lot of thought and here are some of the reasons why that is.

  • When a home is newly listed for sale at Fair Market Value or less, the buyers that come to see the home have a sense of urgency.  If the buyer likes the home, they think, “Wow, I like it, it’s priced right, I want it, someone else might buy it, we have to move fast to secure it”.  That sense of urgency provides strength to the seller’s negotiation position if an offer is made during the first days the home is listed.
  • If a home is over priced, and weeks pass without an offer, the buyer’s sense of urgency dissipates along with the seller’s strong negotiation position.
  • Because buyers and their Realtors view many homes in person and on line and buyers can see asking price history on some web sites, they are very educated on home values.  Also, the buyer’s agent has access to the same MLS information that the seller’s agent has to determine a home’s value.
  • Homes that are over priced have less to offer than homes that are priced right.  Educated buyer don’t make offers on homes they feel are over priced because other homes they’ve seen in the price range had more to offer.
  • The longer a home is on the market, the less interest there is.  Picture a big pool with all the active buyers swimming in it.  All those buyers go to see the new homes for sale when the listing is new.  One by one those buyers buy, they get out of the pool.  One by one, new buyers jump into the pool.  By pricing your home right from the beginning, you have a better chance of receiving an offer from one of the many buyers that are already in the “pool”.
  • Whether a person is buying real estate, a car, a bicycle, a flight or a pair of shoes, they check out the options before they buy and then try to find the one they want for the best price.
  • When a buyer makes an offer on a home, and regrets it shortly after, they have the contract to fall back on to get out of the deal.
  • Most buyers need a loan and lenders require appraisals.  If the home won’t appraise, the deal won’t fly. The purchase contract has a contingency that allows the buyer to cancel the contract if the home doesn’t appraise.
  • Cash buyers usually don’t do an appraisal, but if the buyer is a cash buyer, they almost always want to buy the home for less than Fair Market Value.
  • If a home has been on the market for 3 to 4 weeks without an offer, it usually makes sense to reduce the price.  Keep in mind that a price reduction is typically not as effective as pricing the home right from the beginning, because the big pool of buyers already came to see it and they may or may not come back.
  • Another disadvantage of pricing a home too high to start is if the home doesn’t sell right away, some sellers don’t maintain that same pristine ready to sell look as they did when they first listed their home for sale, and that hurts the value of the home.

So when it comes time to sell, price your home at Fair Market Value and get it done.     The alternative is it taking more time and selling for less, and that’s not as much fun!

If you found this article interesting and would like to keep up to date with the Salt Lake County real estate market, I post a couple times a week on my SLC Homes Facebook page.  You can check that out at:

https://www.facebook.com/SLCHomesNews

Also, if we aren’t already friends on Facebook, friend me!   Kev

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