Thursday, February 25, 2010

Listing Price: What Matters, What Doesn't

(this article is reprint)

I was watching one of those HGTV shows not too long ago. Flip That House, or Sell This House or one of those. The show featured a novice investor who bought and rehabbed a 1970’s tract home. She managed an amazing transformation of the entire house. She opened up the kitchen and installed brand new cabinets and slab granite counters. She re-did both bathrooms were redone with beautiful materials.

The rookie investor did a great job on the remodel and added some real value to the home. BUT she went 2 weeks over schedule, about $20,000 over budget.

darts-nultiple.jpgJust before the home was staged for the first showings, the show’s producers sent in 3 real world Realtors to give price opinions. They were: $519,000 ; $511,000 and $499,000. I'm assuming the rookie Fix and Flipper got that information. In a camera confession, the investor says she’s stretched to her financial limits and needs to get her money back pronto.

She lists the house for sale at $539,000. (this leads me to assume the investor agreed with Realtor #1's estimate of $519,000, but tacked on her $20k over-run)

Big mistake. Sellers, believe me when I tell you that there is a long list of things that do NOT impact how much you can ask for your home for sale. Here’s a short list:

  1. How much you paid for the home

  2. How much your remodeling or improvements cost

  3. How much you “need” to get out of the sale

  4. How much your next house is going to cost

  5. How much your neighbor sold for 2-1/2 years ago

Things that impact your listing price:

  1. How much buyers are willing to pay for it

  2. How long you want to be 'for sale'

Period. It’s really that simple. Welcome to the Age of the Internet, where buyers have access to almost every piece of information available, about every home for sale or sold in the past few years. Buyers have a very good idea of your home's market value and they're not going to pay more than market value. In fact, these days most buyers expect to buy homes for less than market value.

If buyers don’t see your home as a good value at the listing price, they’ll pass you by. If your home seems like a good value at the listing price, you'll get offers.

Of course figuring out what the buyers are willing to pay for your home is the tricky bit. It’s an art, not a science. If it were a science, they’d have computer programs that picked listing prices. We Realtors would all be out of a job because the computers would be 100% correct, 100% of the time, on 100% of the homes for sale. Houses would sell in a few days and nobody would negotiate over price because the computer generated price would be right every time.

That’s fantasy land. Picking the right list price is an art. It involves lots of data analysis, a history of in-depth knowledge of the neighborhood, and a little bit of gut checking. But it should never involve calculating what the seller “needs” to recoup on their investment. The buyers don’t care about your needs; they care about theirs.

PS-The investor on the TV show sold after about 3 weeks on the market. She took $511,000. (remember this article is a reprint. the original show air-date was Fall 2008 and at least in metro Phoenix, the market has gotten worse for most sellers since then.)