Realities of Real Estate: How to tag your home with right price

When we put a house on the market, there are three considerations that must be effectively coordinated to maximize the chances of a successful sale — price, positioning and presentation. As we have said in past columns, it’s like a three-legged stool. If you fail to get any one of the three P’s right, failure is all but certain.

We’ll get right to what most sellers (and buyers) seem to focus on: the price.

There are actually two numbers that come into play, the list price and the market value. To determine the list price, you must first start by identifying the highest possible market value. Here is some information that is irrelevant to the market value: what you paid for the house, what you owe on it, how much you spent to improve the place and how much you want to spend on the new house.

What will determine the market value of a house are things like its condition, what similar properties have sold for, the competitive framework established by other homes for sale, the effectiveness of your agent’s marketing plan and the relative strength or weakness of the overall economy. So, to accurately determine the market value of your house, and subsequently identify an appropriate list price, follow these five steps.

Understand the overall economy and how it impacts real estate: When the economy is growing, jobs are plentiful and incomes are rising, the market value of homes will follow suit, and it tends to be a seller’s market. This allows for an aggressive approach to pricing. When the economy is contracting or somewhat stagnant (such as we have now), it’s more of a buyer’s market, making it necessary to take a more moderate attitude in determining what a house is worth.

Another important part of assessing the overall economy is knowing how mortgage rates can affect the value of homes. For example, even in a weak economy, low interest rates can stabilize what would otherwise be an environment of falling property values. This is a condition we’ve had for quite some time now.

Even if the interplay of supply and demand, Federal Reserve action, fiscal policy and general economic theory makes your eyes glaze over, find a real estate agent who understands how it all works. It’s a critical part of proper pricing.

Know the numbers in your local market: Although understanding the big picture is part of the mix, it’s equally important to be aware of how market conditions might differ in your hometown. Some places are more insulated from national trends than others.

For example, in the Washington area, there’s a certain degree of immunity to recession or falling home prices. That’s because when the economy is good, the federal government grows, and when the economy is bad, the federal government grows. All those new government employees need to live somewhere, and that demand constantly pushes up local home prices.

Trust your agent: It has often been said that the worst person to ask about a property’s value is the homeowner. In most cases, that’s true. Homeowners are just too emotionally invested to accurately and objectively know what their house is worth.

What has great value for a homeowner might not contribute much to the price for the majority of prospective buyers. Take a swimming pool, for instance. Some people love them; others see it as a lot of wet work. The result is that appraisers don’t give you a dime for the presence of a pool. Agents understand these idiosyncrasies, and their more dispassionate viewpoint can help to more accurately determine true market value.

Be honest with your agent: Trusting your agent also means being absolutely honest. This extends to both property condition and pricing. If there’s a problem lurking in your lair, tell your agent about it, because a buyer will surely find it. Agents are well suited to help you fix condition problems and/or develop a response than can nullify or accommodate the influence on value.

Another place where sellers tend to hold their cards close concerns the bottom line on price. Many times, a seller will say, “that’s as low as I can go,” only to go lower at some point down the road. If a listing agent thinks the seller is unable to reduce the price, a reduction might not be put in place, even though changing market conditions require an adjustment. If you don’t trust your agent enough to work toward getting you the highest possible price, regardless of what you’ll ultimately accept as the bottom line, then get another agent.

Adjust to changing market conditions: What is an appropriate estimate of value, as well as the spread between value and asking price, can change dramatically, even in just a month or two. Plus, the nature of your competition might also change. A new house could come to market and undercut your price. Similarly, as homes get sold, new comparables are also created. Be ready to adjust your asking price and value expectations accordingly.

Bob and Donna McWilliams are practicing real estate agents in Maryland with more than 25 years of combined experience. Their email address is [email protected].