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The Price is Right

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Growing up my parents loved the show "The Price Is Right."I mean who didn't, right? I would hear my parents yelling at the screen trying to help the contestant, who couldn't hear them mind you, win a new car.

Their favorite game on the show was called Cliff Hangers. Here the player has three chances to ensure the climber doesn’t fall off the cliff. If they can guess all three prizes without the climber falling off the cliff, they win a large prize.

In essence, knowing the correct price is the difference between staying on the board and winning or falling off the cliff and leaving with nothing.

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It occurred to me, selling your home is a lot like this game. Overpricing a home is like falling off the cliff. Which leads to your home remaining on the market until you remove it or sell it for less than what you wanted.

Before we start, let's clear the air on this very sensitive subject. The price of your home is not determined by what you feel you should get. Rather a more accurate determination is what a buyer is willing to pay for it.

Now for all intents and purposes, I'm not asking you to undersell your home, in fact, I encourage you to get the best price you possibly can. Although to accomplish this, it is important to place your personal feelings aside and use objective measures.

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The Magic Number

So let's get down to what those objectives are! The first thing to consider is the number of sold homes in your neighborhood; preferably within a six-month period. If you are in a neighborhood where homes do not sell quickly, use the benchmark of a year.

The market is constantly evolving. Six months is usually a good place to start to find out the absorption rate for your neighborhood. The absorption rate is simply a fancy way to say approximately how long it will take to sell all the homes, in your neighborhood, which is essentially the current inventory. You can then apply this knowledge to the basic concept of supply and demand.

The absorption rate also tells you what price homes are selling for in your neighborhood, so you can adjust accordingly. The reality is there is no buyer who wants to feel like they overpaid. Therefore, by arming yourself with this useful information you are far ahead of the competition.

Now you may be thinking, wouldn’t I be best served by pricing my home a little higher than the current market thus leaving room to negotiate? Sounds like a great strategy, but it doesn’t consider the typical buyer’s psychology.

Let’s look at that for a moment. Serious buyers know they are going to have to put in a competitive offer to get a home they really want. If by some chance they are unaware of this, their realtor will advise them to do so.

So, when your home is priced higher than the market will bear you tend to attract two kinds of buyers. The first, a buyer who can easily afford your home. This buyer has been looking at homes in your higher price point and will then scrutinize your home against them. If your home does not compare they will be turned off. This results in no offers from this type of buyer.

The other type of buyer, I like to call “the dreamer". This buyer loves your home, but it is out of their budget. They will seek to negotiate with you in a price range they can afford since they know your home is overpriced. Leaving you open to negotiations below your asking price.

It is better to price your home according to demand and accept only those offers that are as close to it as possible. By pricing your home correctly, it will ensure you are attracting only serious buyers.

Multiple price reductions is another consequence of overpricing your home which makes buyers suspicious. Wary buyers do not make offers. It is essential to avoid the strategy of pricing your home above market value as an approach to get a better price. Rather this is just a recipe for your home to sell for less.

Another number to be mindful of is the price of homes currently selling in your neighborhood. This is your competition. If you are overpriced, you will have to create a narrative as to why your home is priced above the rest. This becomes even more imperative if you are competing with new construction homes.

The goal is to create a feeding frenzy for your home! Who does not want multiple offers on the table, with the leverage to pick the offer which presents the most money! It literally pays to know what buyers are looking at before you place your home on the market.

Finally, take note of the price of homes that have been taken off the market. It is important to ascertain why. These homes are what I’d like to call your cautionary tales. There is a saying, “A wise man learns from the mistakes of others.” Avoid the mistakes of these homes by pricing your home competitively.

The Test For The Best

So where do you find these numbers? Please, this is not the time to look at the internet. For now, it is simply not accurate. Getting these numbers are best left to a professional.

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Remember our previous post where I talked about the need to interview at least three agents? By interviewing agents and asking the right questions you can protect your investment and secure an agent who is capable of getting the job done effectively.

During the interview, the agent will do what is called a CMA, or comparative market analysis. This is an analysis of the previously explained numbers and will be used to reinforce your agent's reasoning in the pricing of your home. It is important to pay close attention to the numbers you are given and the explanations for them, so you can choose an agent who is placing your interest first.

Be sure you remove personal feelings from this. Please, try and look through the eyes of a buyer. While it is contrary to our nature, resist you must. Focus on asking questions and LISTEN!

So what do I ask my agent? Here are some questions I suggest asking during your interview:

  1. How many homes have sold within the last six months in my neighborhood and what is the average time it took for them to sell?

  2. What do you believe are the potential reasons for the homes that were removed from the market?

  3. How does my home compare with other similar homes currently for sale?

  4. Are we currently in a sellers or buyer’s market?

  5. What do you believe are the reasons why some of the homes in my neighborhood sold in less than thirty days?

  6. What was the average price per square foot for the homes sold within the last six months?

Questions like these will help you to also avoid excessive promises made by some agents. These agents will say anything to put their sign in your yard. Getting you top dollar is not their top priority. Selling your home and receiving commission is. You do not need a yes man. You need an agent who will tell you exactly the way the market is heading, even if it is not what you want to hear.

Always Have A Plan B

Now that you and your agent have come up with a price that will give you the best chance to sell your home quickly, there are some further things to ponder. The first couple of weeks is critical when your home hits the market. This is the time for you and your agent to really take notice of what buyers are telling you when they come to visit your home. If the overall consensus is your home is overpriced, then it might be time to accept it and adjust accordingly.

The longer you wait to do this the less chance you have to attract buyers interested in buying your home for top dollar. You do not want to be left with only buyers who are looking for a deal.

There are no guarantees when pricing your home, it is an art form. As such, it is always best to adjust quickly so you are not having to settle because buyers have moved on.

In addition, it necessary as well to get your expectations in line with how long it takes to sell your home. Every neighborhood is different. Remaining flexible is important in order to alleviate stress.

For instance, in Katy, TX homes in Avalon at Seven Meadows neighborhood take about 180 days to sell. As part of the luxury market, this can be expected due to the exclusivity of buyers.

Lastly, victory comes to the those who are able to act quickly and decisively. So do not believe in the myth of holding out for the perfect buyer. It is important to remain realistic with offers and work alongside your agent to get you as close to your desired outcome as possible

My hope is this information enables you to reach the outcome you truly desire. Don't forget to share this with someone you think will find it helpful. Also, your insights or personal experiences might help someone else. Please share those down below.

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