Pricing a home for sale is an inexact science – some owners might call it a crapshoot – and determining the right asking price involves both psychological and practical reasons, according to a recent article in The Wall Street Journal.
An asking price is primarily a negotiating tactic, Michael Seiler, professor of real estate and finance at The College of William & Mary, told The Wall Street Journal. “When you set a list price, you’re sending a signal to the market.”
Mike McCann, a real estate professional in Philadelphia, said in the article that most sellers overestimate the value of their home, and some real estate professionals may start with a price that’s too high to avoid hard feelings or to get the seller’s business. Or, they may price it too low for a quick sale.
Setting the right asking price depends on a variety of practical factors, such as the condition of the property and recent sales activity in the area, but pricing research offers a few tips:
Precise prices suggest you are inflexible. Setting an exact asking price – say, $795,475 – could lead buyers to believe that the price is not negotiable. A round number such as $800,000 can indicate that you’re willing to consider other offers.
A few dollars can make a big difference. Pricing a property at $499,900 rather than $500,000 can subconsciously influence a buyer. It seems to defy logic, but researchers say $499,900 is perceived as a huge bargain compared with a home priced just $100 more.
A low starting price can backfire. A lower asking price may net a flurry of offers, but it may not lead to a higher sales price. “It creates a havoc that doesn’t serve anyone well,” Rebecca Walter, a real estate professional in Portland, Ore., told The Wall Street Journal.
Pricing strategies only go so far, however. Ultimately, determining a home’s real value of requires knowledge of the local real estate market and access to recent sales data. That’s where the assistance of a local real estate professional can be most valuable.
Real estate professionals typically compile neighborhood sales data to prepare a comparative market analysis, which provides a sensible starting point for price negotiations.
Seller, the real estate professor mentioned in the article, said that without comparable sales data, “an appraiser will have no clue what a property is worth, and a buyer wouldn’t know either.”