If we take a particular home that has just been listed for sale and introduce the property to a buyer relocating from, say, Chicago and to a second buyer from Mason City, Iowa, it is possible that one may see the home as a bargain and the other substantially overpriced. The “Bargain Buyer” in this example may buy the home without looking at further candidates – who knows! On the other hand if both buyers view another dozen homes before making a buying decision, it is safe to say that their view of relative prices will end up being similar. It is this latter possibility that I dwell upon when I use the term “Market Value”. The specific question is, “What would a well educated (in real estate matters) buyer likely offer for your home under current market conditions”? That particular price or price range does not necessarily have to be the beginning list price, but it should be relatively close for several reasons discussed below.
ATTRACTING THE LARGEST NUMBER OF POTENTIAL BUYERS
At any given time, there are a certain number of potential buyers who would be logical candidates for your home in terms of its price, amenities and location. To the extent that your home has been priced close to or at market value, you can expect to attract 50-60% of those potential buyers; if the list price of your home exceeds the market value by, say, 10%, you can expect to attract 25-30% of the potential buyers, and at a 15% premium over market value, perhaps 10% of the potential buyers. The reverse is true in those situations where the list price is below the market value: greater percentages of potential buyers will tour your home.
MARKET ACTIVITY AND THE PASSAGE OF TIME
Not only do we want to encourage the maximum amount of traffic through our home via appropriate pricing, but we must also be aware of the fact that the most serious, highly motivated potential buyers show up early in the game and that the interest and traffic subsides markedly over time. This means that appropriate pricing and condition should be your major focus right from day one. And here’s why this concept is so important…
THE PITFALLS OF OVERPRICING
Overpricing your home in the belief that you can always lower the price in the future is a strategy that can backfire badly. For example, by the time you reduce your price, you may miss out on the front end surge of traffic and “best” buyers viewing properties like yours – they have come and gone, possibly never to return. Also, as price is reduced, buyers may wonder if there’s something wrong with the property that kept other buyers away. Recent studies suggest that homes on the market less than 4 weeks will show an average difference between the asking price and selling price of -1.9%, between 4-12 weeks -3.6%, between 13-24 weeks -5.6%, and more than 24 weeks -8.9%. So…..
SMART STEPS TO TAKE FOR SUCCESS
Put your best foot forward immediately
Establish a competitive asking price
Keep your home in top showroom condition
Offer as many favorable financing terms as possible