Everyone wants to get as much money as possible when selling their home, maximizing the cash pocketed or equity gained from the deal and better preparing them for their next purchase.
Market supply and demand fundamentals can provide a starting point to establishing a price, but other variables such as specific characteristics of individual properties, location and a seller’s financial needs and timetable must also be factored in.
It may not be a simple exercise, but it’s a critical one. List a property at too high a price, it might languish on the market and turn away potential buyers. List it too low, you might sell it quick, but you’ll be leaving valuable dollars on the table – or in someone else’s pocket.
“Price it right, and it will sell. Price it wrong, and it will sit,” according to Re/Max Condos Plus’s June-July 2008 Condo Market Report.
The realtor was making these comments in reference to recent activity in condominiums, but it’s a philosophy that can be applied to any market.
“The single biggest problem with a house that does not move when placed on the market is price,” says Al Cyrklaff, a real estate agent and certified appraiser with Royal LePage Homeward, Toronto. “If the price is too high, (the property) will not move.”
Not only might your property stagnate on the market if it’s improperly priced, you might also be helping the competition.
“Overpricing the property does not get the seller more money,” says Alan J. Winterfield, an agent with Re/Max Realty Specialists Inc., Mississauga, Ont. “All it does is frustrate them and helps the other properties in the area to sell quicker.”
Logic over emotion
Nor does it matter how much a seller loves a property or thinks it’s better than a similar home around the corner. In fact, several sources say, emotion must be removed from the equation as much as possible.
“When you are pricing your house, logic should win over emotion,” says Sofie Allsopp, professional home stager and British TV personality who stars in HGTV’s The Unsellables. The show, which helps homeowners revamp their unsellable properties, was shooting its second season in Toronto over the summer. “Just because you love your home, doesn’t mean it’s worth more. A property is ultimately worth only what someone is prepared to pay for it.”
“Everyone always thinks their house is nicer than the next one,” adds Chad Bradley, sales representative with Coldwell Banker Terrequity Realty, Toronto. “But unless there’s actual value to that – that they put in $40,000 in landscaping for example – all those things unfortunately are somewhat irrelevant.”
So too, in most cases, is how much money a seller may want to get out of the deal. You can only expect a buyer to pay what’s reasonable, “and what’s reasonable is what else is happening in that market at that time,” Bradley says.
Comparables are key
How to determine fair market value involves contracting a licensed real estate broker, who can access an industry database known as ‘comparables,’ available only to realtors. This information includes details on properties in specific areas and is not shown in regular MLS listings, such as the availability of similar homes nearby and buy-sell histories. This is crucial not only in establishing an asking price but also in weighing an offer, since you will know exactly what comparable homes in your neighborhood have been selling for.
And, importantly, would-be buyers will also be armed with this information.
“The key to any negotiation is always those comparables and that information,” says Bradley.
Some of this data can be obtained by sellers directly from the land registry office, but this can be a time-consuming and arduous task, and the information is not always up to date.
“By checking the comparables, we can find out if a place sold yesterday, what the original asking price was, the length of time on the market and the final selling price,” Bradley says.
A good realtor will also be able to interpret this data, and provide insight on market conditions.
“Once we have narrowed down to what we think to be fair market value on a property, the most important thing is to set the asking price as close to or marginally above so as not to overprice,” says Winterfield. “This is the most common mistake sellers make repeatedly.”
Adds Allsopp: “If the housing market has been cooling off in your area, then that’s not the time to over value your house. A bullish asking price will likely just reduce traffic through your home and it will languish on the market longer.
“Potential buyers will have done their research, and if your house is $50,000 more than the competition, you could end up getting much less for your house than you wanted.”
Sellers can also contract the services of the Appraisal Institute of Canada and one of its accredited appraisers. This is necessary when you want a truly independent valuation of a property, completely separate from any listings motivation of a real estate agent, or if you and your agent can’t agree on an asking price. Examples might include a divorcing couple or a home being put up for sale as part of an estate. These services typically cost between $250 and $500.
Indeed, specific circumstances prompting the sale of a home can complicate the process of establishing an asking price. But this is where sellers must rely on the services of an agent they trust.
“People sell for a variety of reasons, and sometimes other agents are aware of the reasons,” says Cyrklaff. “As a listing agent, I never disclose any information, and I follow the client’s instructions.”
If specific reasons are dictating the sale or its timing, without disclosing sensitive information, an agent can use this as part of a marketing strategy.
“Do you need to sell quickly due to a job relocation or family death? If so, you might want to consider a slightly lower asking price to generate lots of interest and hopefully a quick sale,” says Allsopp. “Do you have equity goals for the sale? Do you need to make X on the sale of your house to be able to pay legal fees, realtor fees, moving cost and not make a loss? If this is the case, you might need to be less flexible on the sale price.”
Most of all, she says, heed the advice of your realtor.
“If you feel you have a good agent, listen to them. That’s part of what you pay them for,” adds Cyrklaff.
“If similar comparable properties indicate that a property is worth $300,000, don’t list it for $400,000 against professional advice. The market will speak loud and clear and tell you to reduce.
“Changing agents can’t change market value.”
Top factors in ‘pricing it right’
There are five factors in determining the asking price, according to Kimberly Maber, Suncorp Valuations, Saskatoon and national board member for Saskatchewan for the Appraisal Institute of Canada.
- Location and proximity: to amenities and nuisances
- Market activity: desired sell period and number of active listings in an area
- Energy efficiencies: for cooling and heating
- Quality, style, age: condition and upgrades required to make the property ‘market-acceptable’
- Special features: anything that makes the property stand out from competition