Monday, November 8, 2010

How do I set the price of my home so it will sell?

[This article first appeared in the Chattanooga Times Free Press]

Q: What price is the "right" price to sell my home?

A: The goal in setting the price of your home is to find the fair market value. Fair market value is the price a buyer will pay and a seller will accept for a property under reasonable and ordinary conditions. This definition assumes that neither the buyer nor seller is under any pressure to complete the transaction, making the fair market value impartial to buyer and seller circumstances. For instance, fair market value is not necessarily what either the buyer or the seller wants it to be based on their needs.

For buyers, simply needing a lower price because that is all the buyer can afford does not change the fair market value of a property. And for sellers, no matter how much money a seller needs to pay off the loan, to recoup what may have been spent on upgrades, or to invest in a bigger and better new home, the fair market value may not support the desired amount. It is what it is no matter how much buyers or sellers wish it otherwise.

In most areas locally, it is referred to as a "buyer's market" because there is a large inventory of homes available for buyers to choose from. The momentum and interest is greatest when your home is first introduced to the market. Buyers are looking for good deals and are doing a good bit of comparison shopping. Homes that start out with a competitive price have a huge advantage over homes that start higher than the fair market value allows because of the exposure new listings have as they come onto the market. Buyers and buyers' agents are waiting for good deals right now and are watching the homes as they come on the market. The "best" homes at the right price are the ones that are attracting qualified buyers, and in most instances are the homes that are currently selling.

Realtors can offer great information as to the comparables in the area because they have access to sold data. It is easy to use comparable properties with what is for sale in the market. But, anyone can set any price for their home. The homes for sale have NOT sold yet and you should use caution when comparing your price to unsold homes. It is much better to see the comparables of recently SOLD homes in your neighborhood, and price them according to the sold market rather than the unsold market of active homes for sale.

A Realtor can give you the information necessary for you to set the correct price that you feel comfortable with going on to the market. Comparables properties are recommendations based on statistical data gathered on comparable homes that have sold and, more importantly, NOT sold so that you can avoid being in the same position with your property. Understanding this will help your Realtor and you arrive at the correct pricing strategy.

Keep in mind that, in a downward or flat market, if a seller really needs to sell their home, it is disastrous for a seller to "ride the market down" because the home simply may not sell. So, rather than face the reality of price, set the home at the price it will sell, the seller keeps wishing for more and ends up having to lower the price time after time while other homes in the area are selling.

It is more cost effective for a seller to be the best value for the price in the neighborhood now than to have the home sit on the market through multiple downward price drops which happen in cycles based on comparable sales in the area. Although it is a very competitive market, a properly priced home will most likely sell in a reasonable amount of time. Understanding fair market value is the first step in helping you get your home SOLD for the highest dollar amount in the least amount of time.

Get answers to questions you might have about real estate from Randy Durham, who is president of the Chattanooga Association of Realtors and a broker with Keller Williams Realty. His column appears on Sundays. Send your questions to Business Editor John Vass Jr. at jvass@timesfreepress.com