The Truth or Falsehoods of Pricing Real Estate
By George Emami
For 18+ years now, I’ve helped property owners through one of the hardest decisions when selling a property… setting the asking price. You’ve heard the 3 most important rules of real estate are Location, Location, Location, but… getting the price right when listing a property is equally critical. As the house on the newly built driving range so cleverly suggests, there’s a market for every property when the price is just right. (It also points out the importance of zoning - which we’ll discuss later in this post!)
But getting the price right is not the easiest thing to do sometimes. Bad information, faulty reasoning, fear of leaving money on the table, and emotion / personal bias often gets in the way of making a sound pricing decision.
So, with the hope of aiding our clients and friends in making good pricing decisions, here are the top three rules of pricing real estate!
1) Be Sure You Want to Sell
Yep folks, this is why they pay me the big bucks. But, there’s a reason I bring it up, and more, why it’s #1. One of my mentors once told me… “Just because someone has a property listed for sale doesn’t mean they want to sell.” But why would someone list a property they don’t really want to sell? The answer lies in another long standing real estate cliche’... “Everything is for sale.” I must have heard this saying 1000 times over the years. What it means is there’s a price point at which anyone will sell anything (or in this case, a piece of property). While I believe that there are things in this life that can’t or shouldn't be bought, many people list property with a “long-shot” mentality. Of course, with every choice come consequences and repercussions. If this first point starts to feel like it’s hitting home, here are a few things you should consider… #1 - Properties that stay on the market forever can develop a negative stigma and end up forgotten about. Realtors who show the property and hear their buyers say “OMG, these people are day dreaming if they think they will get this price” sets off a negative feeling, making it less likely for them to mention it to another buyer. Buyers who see a large days-on-market posted under a listing often wonder “What’s wrong with this property?” Seller’s end up hurting their chances of a sale should they ever become truly motivated to sell. #2 - The Market is The Great Equalizer - If we’re all subject to the larger market as a whole (which we are to the extent that the local, regional, and national economies and home prices impact us), then you can always plan on being able to re-invest wherever the market is at that point in time. So don’t fear pricing your property aggressively if you truly want to sell. If you don’t, then do yourself and the pool of buyers a favor and wait till you’re properly motivated!
2) When it comes to pricing...The Bigger They Are (prices), The Harder They Fall (in the end)!
I’ve seen it happen way too many times.. Seller says “Let’s price it 150% over what I would take in hopes that someone will offer 100% of what I want” only to end up taking a low ball offer from someone late in the listing out of desperation. While this strategy may have worked in the past, today’s consumer is savvier than ever thanks to nearly full visibility into market details via the internet. Each buyer has criteria that they are using to search for property.
They are comparing location, lot size, square footage, and finish qualities before they ever ask their Realtor to schedule a showing. This criteria often asks for the buyer to put in a price range when searching (which most do - as they don’t want to see properties that are out of their price range). What happens next is what I like to refer to as “The Weight Class” effect. The idea here, is that when you overprice a property, it ends up being compared with properties that are superior - thereby pre-destining a failure. One quick glance at these two boxers says a lot. If these two were going head to head, it wouldn’t even be a fight. Same goes with houses… many buyers who might have included your home as an option for viewings, may pass you by after comparing you to the competition. That effect can often result in only a small percentage of people calling on or viewing your property. My personal observation over the years is that you’re better off pricing it fairly now, playing the numbers game to your advantage. Price Attractively = More Calls/Inquiries = More Showings = Increased Chance of Love at First Sight = Contract = Sale. Don’t do that and you’ll be risking a negative stigma or worse… you’ll be forced to deal with a value shopping low-balling bidder!
3) The Perfect Price is Elusive
Quick quiz for you… True or False - All you have to do is compare sales prices per acre (for land) or prices per square foot (for houses) to determine price. - The answer to the question depends on your assumptions. If you assume that all land or property in a geographic area is exactly the same, then maybe this is true. But, since it’s not, the answer is FALSE. Forgive the following Captain Obvious statement but… not all properties are created equally. Here’s a few good examples of what besides acreage or price per foot determine value:
- Neighborhood Amenities - pool, tennis, guard service etc. All of these add value and typically drive the price/ft2 up from other surrounding listings.
- Land Features - view, topography (the lay of the land), timber, water features, and or road frontage can change values for a property significantly. A good example: Lake Oconee, GA building lots on the lake often sell for $300-500k where similar sized lots literally across the street in the same neighborhood sometimes sell for as little as $7k. ((Crazy, I know)).
- Zoning & Use - the permitted uses of a property have a lot to do with value. 100 acres where you can only build one house may be worth less than a one acre lot on a busy commercial corner lot.
- Quality of the finish - A kitchen finished with the most expensive finishes can possibly cost more than a competing home’s entire interior budget. Look at the difference in the two kitchens below. Which do you think would cost more per ft2? It just stands to reason that that home would also bring a higher total price.
So, in the end, pricing properly requires some level of working knowledge and ability to compare many aspects of a property both qualitatively and quantitatively. This is where a skilled broker can be of significant value.
While pricing is important for sure, selling a property is a competitive endeavor requiring full time activity, lots of money invested in regularly in marketing, and systems that create leads and turn them into closings. If we at The Brokery assist you with properly pricing your home, land, or commercial property, please feel free to reach out to us. We have the right combination of experience, market savvy, and advertising brilliance to guide you through a very difficult sales process.