Report #4 – Establishing the Optimal Listing Price for a Top Dollar sale.

It’s amazing just how things have changed in the three decades since I entered the real estate field.   I can still recall that one of the first lessons we were all taught when getting our real estate sales licenses was how to accurately perform a “Comparable Market Analysis.” We were told to pull up all of the recent sales in the neighborhood of “comparable properties,” and do an analysis of the positive and negative features of each, to establish a listing price that we truly had confidence in as being the highest possible value we could attain for our sellers.

 

Well, all of that works fine in a market where the prices are stable, and the homes are identical, but once you deviate from those two parameters it becomes far more complicated to ensure that you’re getting every dollar out of the transaction that you possibly.   One issue that comes into play is the complex interaction of “fair market value” vs. “sales price.” Again, all things being equal, those two should be the same, yet that’s rarely the case. Ultimately, the fair market value is set by calculating the recent comparable sales, as mentioned above, but in a market with little or no inventory, people who really need to purchase and haven’t had any luck finding a property, may be willing to pay far more than a value dictated solely by recent sales. In the end, it’s all about supply and demand.   Those Red Sox World Series Tickets really only have a “value” of $100. After all, that’s what is printed right on the ticket itself.   Yet, if people right and left are willing to pay $2,000, the “value” really has little to do with anything at all.

 

Case in point…I had a recent listing for a modest, but gorgeous 1600sf home, in a neighborhood where all of the very recent comparables pointed to a value of about $360K, and a potential listing price of $375k. I was as sure of that as anyone could be, because the comparables were so straightforward…except for one thing. There was NOTHING for sale in the area and demand was at an all time high. I had a feeling that value or not, we could get over 400K for the home!   I had no clue how we were going to get it to appraise, but I felt I’d cross that bridge later. (Let me just I’ll skip to the end of the story, for a second and tell you that it sold in a day for $431,000.) My Seller agreed and, in fact, had also been thinking it would sell in the 400’s.   Here’s where strategy comes into play, and where the point of my story was heading.   There was no question that we were both on the same page, but rather how to get to that number.   The Seller wanted to list at $415,000. They didn’t expect to get that much for it, and figured that they could always negotiate it downward, but I really didn’t’ think that was the best idea. Rather, I told them I thought we could get much more, by actually asking less!

 

When pricing real estate, things commonly fall into certain striations in the market, usually based on increments of 25K, i.e. $299,900, $324,900, $349,900, 374,900, 399,900 etc.   I’ve never found it to be advantageous to list a home at $506,000, because at that point, the buyers that are looking at it are looking between 500-550k, and you’re never going to win that battle against larger and fancier homes. Instead, it’s always been more lucrative, to list properties just below the next lowest striation, so that to the Buyers that are looking at it, it seems like the best home they’ve seen all day.   My favorite analogy is that if you’re going to sell your used Lexus, you’re best to do it at a Honda dealership, not a Mercedes one. At the Honda dealership, your car will easily exceed the expectations of every person that views it.

 

In the case of the home I was just speaking of, the Seller and I decided after much discussion, that we would list the home at $399,900, still way above the comparable sales, and try and attract the $375-399k Buyers that would view it as the most amazing home of their tour, and then encourage them to want to stretch up to the next level to be able to purchase such a beautiful property, rather than price it into the $400’s and have that set of Buyers view it as the smallest home of the day.   Ultimately, the strategy proved successful, and we had around 10 offers on the home in the first two days. We finally narrowed it down to three Buyers in the $425-431k range, and then were able to hand select the specific Buyer we wanted to work with based on other factors like strength of financing.

 

Having the faith to use a price point a bit below the expected sales value may seem like a completely foreign concept in real estate, but if you think about it, that’s how so many other countless things are priced. After all, they don’t start the bidding price on Princess Diana’s earrings at $300k, right? If they did, nobody would attend the auction.   Instead they come up with a fair “estimate,” and then just leave it to the general market forces to decide what’s going to happen. Many of the time, the result is an item selling for far more than the estimated value..   The same is true for commodities, ipo stocks, and so many other things. By encouraging more views, but the right consumers, you sell for way more than you might otherwise have expected.

 

Another tool that comes into play when selecting the optimal list price is an in depth analysis of real time market forces, combined with something we were always told to not dwell on, namely the currently available homes. Those were always somewhat of a “trap.” You would hear things from a Seller like, “my neighbor is asking X for his home and it’s not nearly as nice as mine, so mine should be listed at Y.” Over and over we would tell potential Sellers that the price their neighbor is “asking” for their home is really irrelevant, because nobody is Buying it. However, in markets like this, it becomes somewhat imperative to consider these active listings as one of the best ways to establish somewhat of a ceiling in the market. Going back to the first home I spoke about, just as an example, when I looked at currently available homes going all the way up to $450k, there were none that I thought were any better than this one.   Alternatively, had a cursory look at those available listings shown several listings in the low to mid 400’s that were just as nice, or nicer, I would have immediately thrown out the idea that we were going to get those kinds of prices.

 

I know I tend to type way too much, but yet there are just so many factors in play here which you can use to your advantage in getting a higher sales price for your home.   In some cases it’s something as simple as reflecting the utility costs into the picture.   In the end, for example, a home with gas heat might cost a Buyer $1500 less a year to heat than one with oil heat. To a potential Buyer, that differential of $120/month is the equivalent of $20,000 worth of mortgage borrowing. Because of that, a recent comparable sale of $500K with oil heat, might mean an expectation of $520k or more for your identical home with gas heat. The same applies to differences in tax assessments, water and sewer rates and other ancillary expenses. All factor in to what a Buyers total monthly cost would be, and the lower their ancillary cost for your home, the higher a purchase price they may be willing to pay.

 

I suppose I have to end this report at some point, however I’ll close by saying that I can think of at least a half dozen or more other things one should consider, to ensure an absolute top dollar sales price. In addition to those, an issue just as important is figuring out which offer to accept, and how you’re going to deal with any appraisal issues that may arise, as you push the limits of the market beyond what the past sales might have indicated.   In any case, if you’re thinking of making a move, by all means reach out anytime, and I’d be thrilled to meet with you and go over everything in exhaustive detail. With over 2000 home sales under my belt, and 30 years in the industry, I like to think I’ve seen it all, and have the skill set to get the job done better than most others in the industry.

 

I look forward to hearing from you.

 

Steve