Pricing a home is one of the most challenging things a Realtor has to do – part art, part science. It requires you to consider a great number of variables to determine a competitive price, far more than most people realize. So it is no surprise that the everyday home seller would struggle with this task.
What can’t be discounted is how important pricing a home properly from day one is to the success of a stress free real estate transaction. Unfortunately there are many ways sellers get their price wrong when not consulting with a pro! What this boils down to is education. Real Estate is one of the few industries where laymen think they know more than we do.
Unreliable Methods for Pricing a Home
Unfortunately, the average person is prone to making errors when trying to price their own home – often because there are outside factors that influence the decision when they shouldn’t. Here are a few things that should not be the end-all-be-all source when pricing your home, and why:
Zillow Estimates – Zillow is one heck of a useful tool for most things in real estate but not for giving an accurate value of a home! Real Estate agents are questioned every week with inquiries like is a Zestimate accurate? A “Zestimate” as Zillow likes to call them is an online valuation tool for valuing property. Zillow has a huge database on the selling price of homes in different areas, and it does a pretty amazing job of compiling that information and extracting estimates. However, those estimates are rarely accurate.
They work for ballpark ideas, not for exact figures. Zillow uses the public records of all of the homes sold in your area. This is great when you want a general idea of what homes are worth in your geographical turf. You can search for homes of similar size, with similar features. But those records do not tell the whole story. They cannot account for improvements recently made, or problems that go unreported. The algorithms used by Zillow cannot possibly account for the new bathroom you just put in, the glamorous kitchen remodel or on the downside, the broken sprinkler system in your backyard.
A well-connected Realtor, though, is likely to have the inside scoop on many of these homes. He or she can use this information to set an accurate price, far more so than Zillow can. It is easy to make a big pricing mistake when you are going on “ballparks”. Keep in mind I have seen the value presented on Zillow off by over $150,000 from the actual value of the home. Not small peanuts when it comes to pricing a home. This is probably the #1 way sellers get their price wrong.
Refinancing Appraisal – The refinancing appraisal is a method of valuation that a lot of sellers like to hang their hat on especially when it benefits them to do so. The only problem is that can be an unreliable means of what the market value really is today. Appraisals can be tricky, especially when they are done for refinancing. Each appraisal is made by an individual, and each individual can come up with a different value.The dirty little secret here is that lenders want the appraisal to work – within reason of course. Lenders make money by writing loans. Each time you refinance your property the lender makes money. There is a little more leeway when it comes to valuations on a refinance. Most of the time the appraisal you get will not be conservative unless the real estate market is in steady decline.
While a high appraisal can be great for getting a refinancing loan, if the appraisal was not accurate, then it can cause you to price your home too high. Not a good thing to do. The appraisal could have been too low as well. There is also timing to consider. When did you get your refinancing appraisal? If it wasn’t within the last few months, it may not be accurate for the current market. Some sellers who have refinanced a home close to a year ago incorrectly assume the market has not changed in that time frame. Rarely is that the case. The refinance appraisal is one that I find the most humor with because some sellers treat the appraisal like they have just spoken to a five star general. Getting the value from a Realtor on the other hand is like speaking to a private in some instances.
Assessed Value – The municipality you live in will have an assessed value on your home. This value is how they build their tax structure, and important facet of living in a community. Assessed values however, are nothing more than a measuring stick for a city or town to collect an appropriate amount of taxes from those that reside in the community. The official nature of this may encourage you to rely on the assessed value of your home for pricing purposes, which could be a big mistake. Real Estate assessed value almost always has no correlation to current market value. One of the biggest problems with the assessed value is that it is often not current. Municipalities will usually assess value once ever 1-3 years. The market can change substantially in a six month period, much less a year.
Listening to an Unskilled Realtor – It is a frustrating fact that not all Realtors are equal in their skill level. It may be due to inexperience, or a lack of attention to detail, or a range of other factors, but some Realtors are just not that good at what they do. When you are trying to sell your most valuable asset, this lack of ability is not acceptable. As stated before, the pricing of a home is quite complicated, and it takes a considerable amount of skill to do it right the first time.
It also takes the humility of experience to know when to adjust a home price when it was set incorrectly. An unskilled Realtor may have neither of these qualities – which can leave your house on the market for far longer than it should be. The other thing to keep in mind as strange as it sounds is some Realtors will intentionally tell you your home is worth more than it is just to get the listing. Everyday there are thousands of homes that have price reductions across the country. In some cases it is an overzealous seller. In just as many cases there are agents who are setting unrealistic asking prices. Real Estate agents who mislead sellers on market value is not all that uncommon.
The agents strategy is to get you to sign a contract beating out the other agents you are speaking to and then bang you over the head for price reductions in the coming months. Some agents don’t even care if they sell your home as they are using it to generate buyer calls for homes they can sell elsewhere! Choose a Realtor that has a record of recently sold homes, homes that were bought for near the price they were first set at. Having an overpriced home with a lousy Realtor is a kiss of death!
Not speaking to anyone – Some homeowners choose to sell their home as a for sale by owner. More often than not the reason is to save a real estate commission. I would never fault a seller for trying. There is no doubt that paying a real estate commission is not chump change. The problem here is that by not speaking with anyone you are taking pricing a home into your own hands. As all ready mentioned pricing is a skill that cannot be overlooked. It takes some real estate agents years before they get it down pat. Knowing how to sell by owner includes speaking with a professional whether it be an appraiser or a skilled Realtor. While you may not choose to hire the real estate agent at least speaking to one to get an accurate price is vital. Most Realtors will do this for nothing in the hopes of getting your business somewhere down the road. This is something every smart home owner should do. Not speaking to anyone is right up near the top of the list as well for how sellers get their price wrong.
Visiting a Neighbors Open House – There is nothing wrong with taking a look at neighborhood houses when they go on sale. It can be fun, and it can be informative. But you have to understand that this is no way to price your own home. When you go look at the house, feel free to take note of similarities and differences. Research is always useful. But ultimately you should rely on your agent to price your home. As much as you may see in your neighbor’s home, there are many other things that you are not seeing. You may not notice the upgraded fixtures, the thousands of dollars they invested for a bathroom remodel, the type of premium windows and doors or the granite counters you don’t have in your kitchen.
There are so many details that it is impossible to recognize them all without experience and training. Maybe you can get your agent to take a tour with you. However, don’t forgo the agent just because your neighbor gives you a supposedly easy price reference. It could be disastrous. Even if all the features in the most are identical to yours, one of the biggest mistakes in pricing is looking at what current properties for sale are listed at. You never want to rely on whether or not your neighbor has priced their home properly.
Sold properties are what dictate market value. You always want to look at what similar properties are selling for not your neighbors unrealistic expectations for their own home. The other thing to keep in mind is the neighbor could change their price at a moments notice. Pricing your home based on your neighbors is a rookie mistake.
The best thing you can do when you have a home to sell is talk to a respected Realtor. Selling a home is surprisingly tough, especially if you want to get the most out of it. The fee you pay the agent will be more than worth the peace of mind you get. The risks involved with overpricing a home equate to one thing – lost money! History shows us over and over again that homes priced right from day one sell for more than those that need a price adjustment.
“I can always come down on my price later” is a common quote that most Realtors have heard hundreds of times. The belief that some sellers have that they can always come down on price later is a poor one. Sure you can come down later, just don’t think you will be getting top dollar. Homes that sell for the most money don’t languish on the market. Days on market is your enemy in real estate!
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