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Stage 02: Set the Listing Price

Jump Right In

Now that you’ve completed Stage 01 and got some momentum, let’s dive into setting the listing price. Where's the excitement!?! We are about to SET THE LISTING PRICE!!! Alright, now we're talking.

The listing price is not equivalent to the home value. The listing price is simply a starting point to announce to the world that your house is on the market. HELLO WORLD, can you picture yourself waking up every morning with this incredible view?

We define the home value as the second highest price that an independent buyer would pay for your home. Your aim: to attract 2 or more prospective buyers to make an offer on your home so you earn the most possible on the sale.


Home Sweet Home

An initial obstacle in setting a reasonable listing price is personal attachment to your home. Many owners are captivated by what they love about their house and, ergo, price the property higher than they should. You should cherish all the wonderful memories from your residence. But a listing price inflated by a sentimental seller will only inhibit prospective buyers from making an initial offer.

“I can't wait to overpay for this home!”
Said No One Ever

Be Realistic

According to the 2013 National Association of REALTORS® Profile of Home Buyers and Sellers study, the second most difficult task for FSBO homesellers is setting the listing price correctly. A home listed with an unrealistic price is much less likely to generate interest. No homebuyer envisions overpaying for a home.

So let's explore 4 simple ways to set a reasonable listing price.


The Real Estate Portals and Big Data

The simplest (and quickest) method to set a listing price is to request an informed guestimate of your home value from the real estate websites (e.g., Zillow, Trulia, Eppraisal). These real estate sites are using public information about your home including number of bedrooms, number of bathrooms, square footage, lot size and most recent sales price, along with recent sales prices for other nearby homes to approximate your house vaulation.


Chase bank also provides a complimentary home value estimated range. There's an option to reveal the home value sensitivity to bedrooms, bathrooms, square feet, total rooms and year built. Click on the "Value Tools" button below the map to adjust the key inputs and see how the value of your home might fluctuate.

Protect Personal Information

Most websites provide the home valuation in exchange for your personal information, which could then be sold for hundreds of dollars to other businesses marketing to prospective homesellers. One of the few exceptions, Zillow does not require your personal information to access their value estimate.

If you don't mind sharing some of your personal information, here are a few other options for estimated home values:

One quick caveat is that these websites have never driven down your street or set foot onto your property. If they only knew how charming your home is!


Accuracy

Does the estimated home value feel a little high? Or worse, does it feel a little low? Well, it is just an estimate; although they do try to fool you into thinking it is more accurate because they list a value to the nearest dollar. Thankfully, we haven't seen an estimate of a home value to the nearest penny... yet.

Unfortunately, these big data estimates of your house value have some relevance because prospective buyers are also reviewing these estimated values online. We'll share more on this later, but if you believe your home value is different than what Zillow, Trulia and the other websites believe, then develop a list of 2-3 specific reasons why your house is worth more.

Tip: Home Value Estimate Accuracy

Zillow self-reports on the accuracy of their Zestimate® versus closing price by state and county, ranging from 1 star (unable to compute) - 4 stars (best estimate). As of March 31, 2014, San Mateo is listed as 2 stars with 27.1% of the Zestimates® coming within 5% of the sales price. For most up-to-date numbers, please review the report for California counties on Zillow.

Zillow Zestimate Accuracy for California counties

While most house sale information is publicly available, some states (or some counties within certain states) require that the home sales price remain confidential. To create comps in these areas, the standard practice to approximate the sales price is to calculate a multiple of the mortgage value (depending on the type of mortgage). The 14 non-disclosure states are Alaska, Idaho, Indiana, Kansas, Louisiana, Maine, Mississippi, Missouri, Montana, New Mexico, North Dakota, Texas, Utah, and Wyoming. These states typically have a greater error rate in home value estimates. If you do live in one of these non-disclosure states, then it will be even more important for you to have 2-3 strong reasons why you've listed your home at a specific price.

If you have a clear idea on your listing price, then feel free to jump ahead to Stage 03: Prepare the Home. Otherwise, if you would like even more suggestions, please continue to read on.


REALTORS© Listing Presentations

Whether or not you are interested in hiring a REALTOR©, a worthwhile process is to invite a few of the top local agents to do a listing presentation. The common practice is for them to enumerate all of their competitive advantages, but they will also suggest a listing price based on the merits of your house versus relevant comps.

Tip: Listen to the REALTORS©

You won't learn anything by talking, or by attempting to convince the agent of what you think the price should be. Instead, be an active listener, focusing on comprehending and retaining the REALTOR'S© proposal. If the REALTOR© suggests a price which is way below (or above) your sense, simply ask them why. A good way to start the conversation:

“We are thinking of selling our house and we want to be realistic. Let’s talk about recent sales in area, how would our house compare? I respect your honesty.”

“What do you truthfully believe should be the listing price of our home?”

There's a saying in the real estate industry that some agents will “buy the listing” by quoting a listing price that is unrealistically high. Experienced agents have come to learn that an owner judges the agent's enthusiasm for the property by the selling price they project; and therefore, they feel strong pressure when competing for a listing to err on the high side of the valuation.

Top agents know that if a strongwilled homeowner has a specific price in mind they are better off to agree to that price (and get the listing), rather than convince the homeseller of the most reasonable listing price before they've hired the REALTOR©.


Home Appraisal

Home appraisers are licensed by the state to provide an estimate of fair market value. The vast majority of property appraisals are done on behalf of a lender as a requirement of the loan approval process. However, an appraisal could also be a useful tool for a homeseller to help determine an unbiased listing price.

The appraisal report will take into account the age and measurements of the home, building materials, number of rooms, foundation and roofing, landscaping, drainage, building code compliance, and even the quality of the neighborhood and schools. Appraisers tend to focus on answering the question of what would be the approximate resale value of the property in case the buyer defaults.

Some REALTORS© won't put too much credence into these reports since the appraiser probably did not set foot in all the other homes used as comps. In general, appraisers will put too much weight into the hard numbers (i.e., the price per square foot, lot square footage), but underweight the emotional appeal of a home (i.e., level lot, open floor plan).

For example, two equivalent homes, with one located on a level lot and one on a hillside, would most likely be similarly priced by an appraiser. But, on the open market, the house on a flat lot might sell for 30% to 40% more versus a hillside home because most families have a strong preference for a level yard for their children. Another example, a pool could add an extra $15,000 to sale price because appraiser is used to working with tangibles. But in real world, pools don’t add value to home.

There still may be some value in doing an appraisal before listing your home for sale, especially if you believe that the Trulia/Zillow/Eppraisal price undervalues your home. Some of the advantages of a professional home appraisal:

  • Help you set a reasonable listing price
  • Reduce the chances that the sale process won't be held up by unseen issues
  • Increase your credibility as a committed and knowldgeable homeseller
  • Potentially reduce your liability by including professional documentation in your disclosure statement

Click here to find a local professional appraiser.

Best Practices for a Home Appraisal

These are the key elements for a home appraisal to come in with a slightly higher value in their report.
  • Provide the appraiser with the 3-5 most favorable comps for your home.
  • Enumerate 2-3 specific reasons why your home features warrant a positive adjustment versus the comps.
  • Share all renovations and recent updates that you have made to your home.
  • Clean the clutter and trim the hedges.

The True DIY Method

Block out the next few Sunday afternoons and tour the open houses in your neighborhood. Get a sense of the other comparable home for sale options with a similar number of bedrooms, bathrooms and square feet. In other words, if your house would be comfortable for a family of 4, then what are the other current options for a family of 4 to purchase in the surrounding area? By seeing as many homes in your neighborhood and tracking their selling price you can become your own most valuable resource when it comes to pricing.

Unless you have an advanced statistics PhD and no plans for the next six months, we wouldn’t recommend constructing massive regressions of property sales prices in your neighborhood compared to key variables. Instead, let’s use the Cliff Notes version from some other PhDs to get a general sense of what a fair price is for your home.

The square feet is almost always the most important variable in determinging the market price of your home. Your listing price should be within +/- 10% of similar homes in neighboring area.

Best Practices for Setting Initial Listing Price

Here's a simple calculator for you to compute a baseline listing price for your home.
Click here to get average price per square foot for your city.
Input your city and state, then scroll down to the "Listings & Sales" section.

Looking for recent home sales? Some good online resources to identify comps include Zillow, Trulia and Realtor.com.

If there aren't any reasonable comps in your local area, then you either are living on an island. Or perhaps, your home is a scarce resource. We would still recommend setting a reasonable listing price to attract the most offers with the understanding that you'll have greater negotiating power after initial offers are presented. We will discuss this in greater detail in Stage 05.


Hot or Cold Real Estate Market

Pop quiz, are you in a buyer's market or seller's market?

Characteristics Buyer's Market Seller's Market
# of Listings Lots Little
Days on Market >100 days <60 days
List vs Sale Price List > Sale List < Sale
Price Cuts Frequent Rare

Still not sure? Here are a few tools help you gauge the hotness of your market. In Trulia's “Market Monitor” widget below, first enter your zip code and click “update”. Then click on the “sales inventory” tab to get a sense of current inventory over the past year. NOTE: There is some seasonality in real estate as a greater percentage of sales occur in June through August (versus January through March). Therefore, searches and listings should peak in April and May, and hit the lowest levels in December.

Market Monitor

Warning: Housing Market Heat Map

If your city is currently in a cold housing market based on the overhang of inventory relative to the amount of purchases, then be careful about setting too high a listing price relative to the comps. Or if the market is hot, then now might be the perfect time to list your home for sale. Click the map below to review Trulia's heat map for your local area.

Real Estate Housing Market Heat Map


The Price is Right

In some local markets, the culture is to set a listing price slightly higher than the comps in order to create some flexibility to negotiate an offer and allow the buyer to feel like that got a great deal. In other markets, the standard might be to set a listing price slightly below the market value in order to attract more offers.

Price Below Comps Price Above Comps
Seller's Market
(Low inventory)
Attract offers
Sell fast
Higher anchor price
Buyer's Market
(High inventory)
Attract offer(s) Stagnant
Cross fingers

First-time homesellers tend to set a higher listing price because they have inflated expectations for their home. There is one potential advantage: set a higher anchor point. Although there will be a few less offers on your home, any interested buyers will be negotiating against a larger number and you will have greater flexibilty to negotiate.

Most REALTORS© though would coach you to set a low but competitive listing price to create more initial interest. And more interest → more traffic → more offers! For example, here's one recent article discussing how Home Pricing Strategies Incite Bidding Wars. The ideal scenario for all homesellers is to have multiple offers in order to pressure the buyers to bid more competitively.

Most importantly, you will want to set a price that is competitive. Over the next few weeks, expect to get some pushback on the price for your home. As we've mentioned, be ready with 2-3 quick reasons for why your price makes sense.

Did you feel like you had a little extra energy when you woke up this morning? Good news. Today just might be your lucky day.

Click here to open your “Fortune Cookie”

You’ve been randomly selected to participate in our new program to provide custom one-on-one support to set your listing price. If you’d like to take advantage of this special opportunity, please do the following:

  1. Create a 2-4 minute video walkthrough of your property.
  2. Upload the home walkthrough to YouTube.com.
  3. Email the video link and your property address to us at pricing@brokerzero.com.
We will then reply back within 48 hours will some advice on setting your listing price for your home for sale. This special is only availale for a limited time and we reserve the right to cancel without notice.

Summary for Setting the Listing Price

Key Takeaways for Stage 02


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