There’s a fine line between pricing a house too low or too high. List it too cheap and you’ll miss out on netting a higher profit; but list it too high and it can sit on the market for months, making it harder for the property to sell. So how do you price your home right?
To avoid the quicksand of under or overpricing, we sat down with two top real estate agents to vet their expert advice on how to price a property to sell.
“If you can price it and show it right, you can create more urgency day three on the market than you can day 33, or day 63, or day 93,” advises Kenny Klaus, one of the highest performing agents in Mesa, Arizona, with more than 3,600 real estate transactions under his belt.
Price the house wrong, and you look at price reduction after price reduction (which could attract lowball offers down the line) and months of extra costs, not to mention, as Klaus says, the “disruption of putting your house on the market.”
With a little research, market analysis, and some cold hard logic, you can price your home to sell – and sell fast – on the first try. In this guide, we’ll show you stat-backed ways to find your perfect list price.
What are the dangers if your home is priced too high?
There are a number of reasons real estate experts caution sellers to avoid overpricing their home. While it may seem counterintuitive, asking too much can backfire. Here are some of the dangers you might encounter.
Price reductions and a longer process
If you hope that an above-market list price will get you more in the long run, reconsider. Klaus told us about one client who made that fatal mistake:
“We’re actually dealing with one right now. My brother went and did the listing appointment and they went with another agent and priced it $20-$25,000 more than what we said. They did two price reductions and fired the agent.”
Sure, it’s exciting to think about getting significantly more for your home than you originally thought, but overpricing isn’t the way to go.
“Now they’re listing with us at a price that we feel, based on black and white — not emotions, not what their neighbor said, not what their best friend’s co-worker’s spouse told them to list it for, not what Zillow listed it for, but truly what the market is based on adjustments to the property,” says Klaus.
The National Association of Realtors® (NAR) reports on average, properties that sold in 2021 sold within 20 days of listing. In February 2021 alone, 74% of homes that sold sat on the market for less than 30 days.
The longer the property sits on the market, the staler it becomes. You really want to move it in the first two weeks because that’s when all the excitement and all the traffic happens.
- Wendy Rich-Soto Real Estate AgentCloseWendy Rich-Soto Real Estate Agent at Keller Williams Realty, LA Harbor Currently accepting new clients
- Years of Experience 21
- Transactions 210
- Average Price Point $592k
- Single Family Homes 120
A stale listing attracts less buyers
“The longer the property sits on the market, the staler it becomes,” says Wendy Rich-Soto, a real estate agent who’s successfully sold over 900 homes in Los Angeles County, California. “You really want to move it in the first two weeks because that’s when all the excitement and all the traffic happens.”
Potential buyers become skeptical of long-listed properties, wondering about the condition of the home; whether it’s in a dangerous neighborhood, positioned next to a noisy freeway, or if it’s suffering from a damaged foundation.
Buyer may not be able to get loan approval
Besides a slow sale, pricing a property too high can also lead to problems when it comes time for the appraisal. Even if you get a buyer at the high price point, the home might still appraise for market value. In that case, you’ll likely have to lower the price anyway so that the buyer can get approved for a mortgage loan. Or, the buyer will have to come up with cash for the difference.
You might field lowball offers
Another risk is if a home is priced too high, buyers might come in with lowball offers to get the home right at or right below market value. All in all, you’ll simply make more if you start at market value from the beginning.
Klaus adds, “Statistically people end up netting less list price to sales price once they have to start making adjustments from where they should have just listed it in the first place.”
What are common reasons a home is priced too low?
Rich-Soto says you cannot underprice a home.
“What I mean by that is a house is going to be worth what somebody is willing and able to pay. Especially in this crazy seller’s market, everything has multiple offers on it. So, if you don’t get an exact target perfect – I think that’s the big worry, ‘oh, we should be $10,000 higher,’ – if it’s worth more than it’s listed for, you’re going to get offers higher than what it’s listed for.”
There could be several reasons a house is priced below market value. A seller may want to sell the home as quickly as possible due to a major life change, like relocating for a job, or a death in the family, or perhaps their listing agent is unaware of the current market value of the home.
Properties may also be priced low because they:
- Require costly repairs
- Are dated and need large-scale renovations
- Have foundation issues
- Are in an undesirable location
- Have a history that buyers are wary of
Rich-Soto shares a story of a listing she had that was in a great neighborhood and school district, but the house had one catch.
“You can’t move the house. It’s always going to back up to a shopping center, and people don’t want to live in a house that backs up to a shopping center.”
A big minus, says Rich-Soto, sharing that a good listing agent will be kind but explain this to the seller to set a clear expectation.
How can you price your home just right?
An online home value estimator is a great starting point to get an idea of the worth of your home, but we still recommend getting a full comparative market analysis (CMA) from a top real estate agent.
Rich-Soto explains how automated valuation tools give you a price range, but it’s an automated computer giving you that range and it may not be accurate. Your house could actually be worth a lot more than you’re seeing.
“When you are looking to get your house evaluated so you know what it’s worth, you have to get a real person there to evaluate the property and tell you pluses and minuses and what your property is ballpark worth, based on today’s market and what’s happening in the market right now.”
Your best bet is to list your home at a price that’s based on what a CMA says the market can support today. We’ll show you how you can run your own, base-level CMA further below.
Looking to work with a top real estate agent in your area? HomeLight’s free online Agent Finder platform has introduced over 1 million buyers and sellers (and counting) to top-performing local real estate agents. Our data shows the top 5% of agents across the U.S. help clients sell their home for as much as 10% more than the average real estate agent, and they can provide a CMA to help determine your home’s market value.
Let’s take a look at what makes up a comparative market analysis.
What is a comparative market analysis (CMA)?
A comparative market analysis is a report real estate agents create to determine a fair list price of a home based on the sale price of recently sold or pending homes similar to yours in your neighborhood. Based on what these comparable houses sold for (comps), you can get a more accurate read on what you should list your home for in the market today.
Property details used to determine homes of similar value include:
- Home condition
- Number of bedrooms and bathrooms
- Parking spaces
- Lot size
- Property renovations
- Neighborhood amenities
- HVAC system, roofing, and other major features
- Local school districts
- Crime rate
Real estate agents compile stats on similar houses by pulling information from the multiple listing service (MLS) which they use to create one large, comprehensive overview report. This report can then be shared with sellers to answer any questions about pricing or how a suggested sale price was selected.
Rich-Soto says that while CMAs can be used as a pricing framework, they aren’t an exact science, and a Realtor® should always visit a property in person before pricing it to see its current condition.
“You can have two houses and one can be in really amazing condition and fetch a really high price and the next-door neighbor could have the exact same floor plan and have let their house go to pot, and guess what? They’re going to have a much lower sale price, even in this market.”
Can you perform your own comparative market analysis?
Note: Not all states publicly disclose recently sold home prices. If you live in a non-disclosure state and hope to find the sold price of a home to create a CMA, you’ll have to ask the seller or work with a real estate agent who can access this information.
We sat down with a licensed real estate agent and asked him how he would run a CMA if he didn’t have the tools of a real estate agent. This is how he walked us through the process.
For example, let’s say you have a three-bedroom, two-bathroom 1,500 square foot single-family home in a suburb of Grand Rapids, Michigan, that you want to sell.
- First, go onto Zillow’s website. Then, search your home’s address. (Exit out of the page that pops up, including your home value, details, etc.)
- Next, go to the top display bar and on the far left select “Sold” and hit “Done.”
- Then, select “Beds and Baths” from the top display bar and select the same number your house has (for this example, three bedrooms and two bathrooms), and select “Done.”
- Next, select “Houses” from the top display bar and choose the type of home you have, and select “Done.”
- Now, go under “More” and select any similar features to your house. For example, enter your home’s square footage range, lot size, the year it was built as a minimum, and if your home has a garage, etc. At the bottom next to “Sold In Last” select 90 days (or shorter) to get the most up-to-date sale prices.
- After hitting “Done,” outcomes for “Recently Sold Homes” and “Similar Results Nearby” will appear on the right side of the screen.
Pay close attention to the number of beds, baths, and square footage in each comparable house. The more similar those numbers are to yours, the better. Also aim to find homes that sold as recently as possible.
Select the homes nearest yours and see when and what they sold for. If possible, aim for houses within a mile of your home. You need three or four similar houses to make your comparative market analysis report. If you don’t see many results, you can always expand your parameters.
Once you have three or four homes, you can create a price range. Using this example, similar homes in the area have sold anywhere from $265,000 to $320,000.
Another option for getting a real-world home value estimate in less than two minutes is through HomeLight’s Home Value Estimator tool. This free tool uses your property information and local housing market data to deliver an estimated home value. And while an Automated Valuation Model (AVM) is a great tool for providing a ballpark estimate of your home’s current value, running a reliable CMA or getting an appraisal remains the most accurate, stat-backed way to figure out your home’s worth.
How to read market conditions that affect your home sale
The temperature of the current real estate market will absolutely affect your home sale. That’s true on a national, state, city, neighborhood, and even street level. Make sure you’re up to date on the most recent national and statewide real estate market news.
Take a look at these resources to understand the real estate market and price your home right:
The National Association of Realtors® (NAR) releases a “Pending Home Sales” report every month to help you get a pulse on how many homes are in contract nationwide. While this report does not offer local insights, its percentage of pending homes is an important forward-looking indicator of the market.
NAR also releases an existing-home sales report, which keeps track of home sales that have closed across the U.S. This report shows where the percentage of closed sales falls relative to the previous month and year. It also gives you an idea of how many months of inventory there are currently. “Months of inventory” just means the time it would take for every house on the market to sell. Six months is considered a “balanced” market.
The Case-Shiller home price index tracks the value of the residential real estate by examining any changes in prices. You can look at the price index nationally, but you can also sort by city if you live in one of 20 areas. This includes major cities like Denver, San Diego, and San Francisco.
CoreLogic’s Home Price Index predicts trends in home prices and gives insights on current trends. You can see these at the national and state level, and the report does include information for a few metro areas, including Los Angeles, Las Vegas, and Houston. You’ll also be able to look at a map that features 100 metro areas and find out if real estate in your area is under or overvalued.
CoreLogic’s Loan Performance Insights reports on the current percentage of defaulted mortgages nationwide, statewide, and for a handful of metro areas.
The Bureau of Labor Statistics’ report looks at unemployment rates nationally. A strong job market correlates to a strong housing market.
Another way to get a reading on the jobs market, the ADP employment report shows the number of new jobs by company size and industry.
The Census Bureau’s report on new home sales provides data on the number of new construction single-family homes sold across the U.S., the median sale price, and new constructions currently for sale. You’ll also see year-over-year percentage fluctuations.
This report provides data on the number of completed new constructions and new constructions in progress.
Partner with a top real estate agent you trust: Find one now
Now that you know how to run your own initial CMA and size up the market, you’re on the right path to pricing your property to sell.
If you’re wanting to sell in the next one to three months, Rich-Soto advises meeting with at least one real estate agent in your area.
“Sellers should definitely meet with a Realtor® that they trust so they can have an actual walk-through together, and a consultation about what things they can do for little to no money to get the property ready and presentable for sale,” says Rich-Soto.
You can also compare your own CMA to your Realtor®’s report to see how the numbers match up. If they don’t align, it can be beneficial to see their CMA and learn how they pulled the numbers they did and why.
“A real estate agent knows the market,” says Rich-Soto. “They’ll know your house, and they’ll know it in comparison to things that have sold or are coming up or are already on the market. They’ll have an accurate understanding of what your property is worth… if they know the area.”
Header Image Source: (Braden Collum / Unsplash)