Determining the Market Value for your house can seem like a daunting task. The number is arrived at through a combination of numerical analysis of available data and comparison of non-quantifiable characteristics which necessitate a ‘gut-feeling’ approach. Given the wealth of historical data accessible in the MLS system, the numerical analysis is fairly easy. However, the ‘gut-feeling’ can only come from experience and objectivity – typically found in an experienced real estate agent.
Comparable homes that have recently sold tell you how much buyers are willing to pay, and listings that have expired usually indicate that the properties were overpriced. Remember that homes currently for sale are listed at the Seller’s hoped-for price – not necessarily market value.
- Comparables: The first step is to find comparable homes that have recently sold in your immediate area. Also look at listings that have expired without selling – these were likely overpriced. Compare homes that are as similar to yours as possible. The most important characteristics are:
- type of house (number of storeys, semi or detached)
- size of house (number of bedrooms & bathrooms, is there a family room?, finished basement?)
- lot size
- parking (front pad, garage)
- location (main or side street, school catchment)
Note that these are characteristics that cannot be changed. Characteristics that can be changed describe the condition of the house.
- Condition of Home: How does the condition of your house compare with that of comparable homes that have recently sold? Is it in move-in condition? Are repairs required? Is it fashionably decorated? Some important charactistics are:
- curb appeal – that first impression encompassing landscaping, windows, roof, front porch, etc.
- architectural improvements – e.g. open concept living room/dining room, master bedroom with in-suite bathroom, main floor powder room.
- quality – kitchen and bathroom cabinetry and fixtures, nicely finished basement with height? flooring, windows.
- state of repair – needs painting? creaking floors? anything broken? does it smell? is it clean?
- decoration – fashionable furnishings and colours? decluttered?
- backyard – well-tended? room for kids?
- systems – wiring is knob&tube or aluminum? fuse box? at least 100 amp service? plumbing with galvanised pipes or lead? oil tank too old or buried? Can the property be insured?
- major problems – prone to flooding? insect damage?
Ask yourself if you are willing to make improvements to make your home attractive to buyers? Can you re-paint your walls, make necessary repairs, prune and plant flowers in the garden, de-clutter and remove excess items including furniture, polish your floors? Each of those improvements increases the chance of a better offer price.
Determining Asking Price
The asking price has a considerable impact on the actual sale price and the length of time to sell. Simplistically, the lower the asking price, the quicker the sale. The asking price is used by the buyer as an indication of how much the seller wants for the house – it is usually used as a starting point during price negotiations. Don’t forget to look at the competition. How does your house compare with comparable properties currently for sale?
Option 1: Trying for multiple offers
In a hot market, homes in your neighbourhood will be selling fast. One strategy employed by sellers is to price their house low (really low) in order to attract a frenzy of buyer activity. The hope is for a multiple offer situation where several offers come in at the same time and a ‘bidding’ war ensues. In the ideal scenario, the buyers will be so caught up in the bidding that they over-bid and the house sells for a price that is higher than market value. This strategy is very stressful and can backfire. If it doesn’t attract offers, your house will be ‘stuck’ with the low price. Even if you change the listing and increase the price, the MLS system will still retain the old listing for any agent to see. However, this strategy can be very successful and should be considered if your house has the following characteristics:
- it’s in a hot neighbourhood, preferably one in a desireable school district
- it has parking
- it’s big enough for a family with 2 kids
- it’s completely move-in condition – no renovation needed
- it has the ‘look’ – Houses with the ‘look’ make buyers fall in love with them. Typically, the ‘look’ is found in such magasines as ‘Style at Home’. To acheive the ‘look’ some sellers opt to have their house ‘prepped’ for selling. This involves removing excess belongings, often replacing furnishings, painting in fashionable colours, accessorising, and ensure a nice ambience (smell, music, fireplace).
Option 2: Trying for multiple offers – but not as stressful
By setting your asking price in the middle of the range of recent sales of comparable homes, a Seller has a good chance of getting competing offers. Potential buyers will be attracted by your reasonable price and feel that it’s a good deal. If the house doesn’t get competing offers, the asking price is still a reasonable amount for the seller.
Option 3: Tried-and-True
By setting the asking price a little above market value, the seller allows some room for negotiation. It’s not too high to dissuade Buyers.
Effects of Overpricing
When a Seller prices their house to sell, they will often add a buffer to allow negotiating room. This is a common and perfectly reasonable thing to do. However, this buffer cannot be too large or you will dissuade Buyers from putting in offers. In my experience, properties that are significantly overpriced tend to take longer to sell despite good exposure and a reasonable amount of time. There are a couple of reasons for this:
- Buyers’ Agents lose interest in showing your house after a number of unfavourable reactions from their buyers.
- Potential buyers start to wonder if there is something wrong with it. They may not come to see it at all, or they may offer less than they would have otherwise.
Often, the seller decides to price their house high at first with the intention of dropping the price if it doesn’t sell after a few weeks. I find that this strategy does not work advantageously for the seller. When a property has been on the market for a long period of time, buyers start thinking that the owners must be getting desperate and the offers will often be unreasonable. Decreasing the list price serves to reinforce this belief.