While every element of the marketing mix is critical when listing a property, the one that gets the most attention by sellers, hands down, is pricing. Setting a list price that attracts one (or ideally, more) qualified buyers, is considered by many to be an art. I guess what they mean by that, is that there never seems to be sufficient data to draw dependable and statistically significant conclusions around a price so something else must drive the decision and if it's not science, it must be art. I often talk to sellers about the art and science of real estate, but I use the “art” word somewhat differently. Before getting to that, let’s talk about the science of pricing residential real estate.
There are 3 different methodologies that I use to determine the optimal residential real estate price.
1. Comparables Analysis— The most important aspect of this analysis is avoiding what we used to call GIGO– “Garbage In, Garbage Out”. That is, be sure to select properties that have some logical and rational reason to be included in the Comparables group. Location, square footage of house, land size, house condition and age are “Musts” to look at. Sold listings are critical and within them, the pricing history of each property, including the days on market and price changes before the property went to contract. Actives are relevant in that you need to know what the live competition is, but Comparables provide real insights on ultimate sales price.
2. Assessed Value- While assessed values may have little relation to what properties are currently selling for, they can be useful if applied carefully. Say a couple of properties have sold in your seller’s neighborhood. One would think that the Town Assessor used the same algorithm and way of thinking for your property as well. If you look at the differential in assessed value to the sold value of those properties recently sold in the neighborhood, you can then apply the ratio to your listing property’s assessment. It’s not the definitive pricing solution, but it is a relevant data point.
3. Zillow– While Zillow’s methodology can be grossly off base and end up causing more trouble than providing insight, agents should know what buyers are seeing for Zestimates.
Even with these various methodologies, pricing is not a slam dunk. And that’s why the art of the price opinion is also important. Knowing the town, each street, the inside of a house from the floor plan to quality of finishes, provides information that can’t be gleaned from Google Earth or online factoids. An agent that has a strong, first-hand knowledge of the town and real estate inventory can add a critical layer of information into the pricing exercise.
Lastly, a seller’s motivation level can influence the number and pricing strategy. Some sellers don’t want a long drawn out sales process and actually trust the research that shows the longer a property is on the market, the further away it will sell from its list price. In the current real estate environment, I am finding greater success in pricing tight to the market, enticing buyers to come tour my listing rather than the myriad of others that are competing for buyer attention. A showing is the first step towards an offer and sitting too high, hoping they will “Come, fall in love and make an offer” is risky thinking today.