For Sale By Owner Pricing Mishaps For North Shore Sellers
Sellers think about listing a property for-sale-by-owner to save money. Experience has shown that it may actually cost them more in the end...
Below are a few things for sellers to consider before making the decision to do it alone.
The North Shore real estate market is continually changing. Pricing will determine days on market, what amount it finally sells for, and whether it gets sold at all.
Homeowners often have trouble determining listing value based on the property features, location, and desired timeline, and trouble adapting to changing market conditions.
Before determining the price of the your home, the first thing you need to look at is…
Finding comparable properties is the most important step to pricing. Homeowners usually commit a few mistakes at this phase.
- Looking back to the value of neighboring properties from years past.
- Referring to the value of their own home from a past market analysis.
- Utilizing different styles or types of homes (i.e. comparing a ranch to a full-sized colonial).
- Pulling up active listings that are incorrectly priced or not moving.
Using the wrong listings for pricing will result in inaccurate values and typically overpricing. Overpricing is the number one reason for sale by owner (FSBO) properties don't sell.
Use Recently Sold Homes to Price your Home
Homeowners often get tunnel vision when pricing their home without the help of a third-party - like an appraiser or a real estate agent. It makes sense. Homeowners are emotionally attached to their home.
When choosing what price to sell their home, homeowners often use comps based on current list prices, instead of recent sale prices. This is an easy mistake to make.
To find comps for their property most homeowners will turns one of the major real estate websites. You know which ones I'm talking about. They are the first few websites a pop in your mind when you think about real estate.
These sites are designed to sell properties. So it makes sense that they would steer you towards properties currently for sale. But using the prices of homes currently for sale for your comps is a big mistake. You want to know what homes have already sold for…
Recent sale prices are far more important than current list prices. Current list prices tell you what people want to get for their home. Actual sale prices tell you what buyers actually paid for similar homes.
People always want more than they can get. But, smart sellers price very close to what you will sell for - if not less.
The reason for this is simple… Overpriced homes sell slower and for less money.
Why overpriced homes don't sell
Using current list prices will cause homeowners to overprice their home. This discourages buyers.
We've all heard the old adage, "leave room for negotiation." It's terrible advice!
Buyers don't want to haggle. They want to make an offer close to list price. But, if list price is too high... you're forcing them to haggle.
Most buyers, even seasoned investors, see an overpriced listing and cringe. They think the owner is just being unrealistic. Most of the time they won't bother to make an offer at all.
Thing is, buyers are afraid of rejection just like everyone else. Their offer is an emotional investment in your home. In their minds, the further their offer is from your asking price, the more likely you are to feel insulted.
- Even if their offer is fair.
- Even if you are willing to come down to their price.
Rather than experience your rejection, it's much easier to make no offer at all. And, instead, go find a seller they don't have to haggle with.
Sometimes they don't even get to see your listing...
Let's say your Marblehead home is worth $500,000 and your perfect buyer is approved for a $500,000 mortgage. You list your home at $540,000...
Chances are that buyer is now looking for homes listed up to $500,000. They may look at homes listed as high as $510,000 or $520,000. But, odds are, at $540,000, your listing doesn't even show up on their radar.
As the price of a home goes up, the number of buyers who can afford that home drop significantly. For example, do you think you will find more buyers looking for $500,000 homes or million-dollar homes?
This may seem obvious. But it's easy to forget when you're pricing your home.
Can your Overpriced Home Compete?
Listing your home at the $540,000 mark means you have to compete with other homes at the same price. Let's imagine a market where not everyone overpriced their home...
That means some of your competition will be homes actually worth $540,000. Their house will have better features, more benefits, maybe a more desirable location. Buyers have no idea that you would be perfectly willing to accept the $500,000 your home is actually worth. They only see that you are expecting to sell your house for as much as better homes on the market.
What do you think a buyer is going to do when they compare your home to the well priced home? They will buy the better priced home before yours 100% of the time.
This is why it is so important to have a professional price your home. An experienced, smart real estate agent will take advantage of the overpriced homes on the market to make their listings look even better. They know...
- everyone is looking for a deal.
- everyone is looking for the most bang for their buck.
- everyone wants to make sure they don't get screwed.
A well priced home, and especially a slightly underpriced home will generate a ton of buzz! People walk into that home and feel like they're seeing the value for every dollar they are spending. They get excited. They want to put in an offer immediately.
On the flip side, when they walk into the overpriced home they feel disappointed it doesn't have the features they expect at their price point.
You see this all the time at open houses all the time. There will be no buyers for the overpriced home, while the well priced home down the road has so much foot traffic you can hardly fit through the front door.
This buzz creates such a strong sense of competition. Buyers can't help but make offers. And seeing so much competition around them, they often end up in bidding wars. Bidding wars get heated. Buyers don't want to lose the house. So they make higher offers - sometimes for more than the house is even worth. All of this to the benefit of the seller.
Meanwhile. Down at the overpriced home… There no foot traffic. No competition. No one is making any offers. The house sits on the market longer. And sells for less.
Inaccurate Price Adjustments
Another facet of pricing is making adjustments for differing amenities. It's difficult to find two identical homes, so adjustments are typically made for space, property condition, and amenities such as garages, bedrooms, fireplaces, condition, and renovations.
Sellers tend to use the amount spent on renovations. However, the market value of most features do not often match the cost for them. In fact, some features may not result in any value.
Before making any renovations to your home consider these two questions:
- Are you renovating for your own enjoyment first and foremost?
- Can you accept a return on investment less than the cost of the renovation?
If you answered "no" to either of these questions, you are renovating for the wrong reasons. Here's why…
Buyers want to make their own design decisions
You may have great taste, but your taste isn't necessarily the same as your buyers taste. Maybe you like more of a craftsman design style, while your buyer would prefer a more contemporary style - with its sleek lines and muted colors. In this case your renovations may make your home less attractive to a prospective buyer.
So if you're making improvements to benefit the future homeowner, you are doing it for the wrong reasons. Let the next homeowner make improvements with their own personal style.
Less renovated homes attract more buyers
Fewer renovations mean a lower price point. And, as we said before, the lower the price point, the larger your pool of potential buyers. Many are happy just being able to afford to buy your house - with his current amenities and great location. They may plan to make improvements later down the road as their family expands. Or, they may think your house is perfect the way it is.
When renovations make sense…
None of this means you shouldn't make any renovations. Small renovations can make sense. You may need to repaint a room in a neutral color, or replace an old, broken sump pump. These upgrades either make the property more functional as is, or slightly more attractive to a potential buyer. They don't necessarily increase the value of your property. But they can make your home more attractive to your target audience.
Always consult a professional before making even the smallest renovations. They will point you in the right direction. Real estate agents are educated on what appraisers may use for adjustments and will apply those properly when putting together a market analysis on a home.
You would be shocked how often a buyer doesn't want to make an offer on a house because of a strange paint color choice. Or, they don't like the carpeting you put in one of the bedrooms.
Just don't go overboard with a massive, expensive renovation or addition. It will almost never pay off in the long run.
For Sale By Owner Pricing Mishaps For the North Shore Sellers
Overpriced homes can cost homeowners considerable time and money. Listings may sit on the market with no interest or with activity from buyers that are strictly curious as to why the price is so high.
Additionally, buyers have a negative view on homes that have been on the market for extended time frames and commonly offer less even if the price is later reduced. That's if they will even look at your property. Buyers will assume that there must be something wrong with your property if it hasn't sold in a reasonable amount of time.
In a down market, a home can even be worth less by the time it sells. By pricing too aggressively your good market turns into a bad one, and you lose your leverage.
All of this leads a for sale by owner listing to sell for much less than it may have with the experienced advice of a real estate agent. That difference can be higher than what a seller thought he or she was saving by trying it alone.