Home Selling Academy

Lesson 4 - Pricing Your Home

Introduction

Now it is time for the fun to begin.  This module is going to show you the different ways to price your home for sale and how to choose the best way based on your circumstances.  Once you are finished with this module, you will know…

  1. How much you are going to price your home for sale.
  2. Have a good idea of how long it may take to sell.
  3. Be able to validate your assumptions.

As you move forward with this section, you are bound to have questions.  Jump over to the Facebook Group and ask your questions.  No question is too big or small.

Different Ways to Price Your House for Sale: What is best?

  • Watch the Video and choose the 1-2 methods you will use to price your house for sale. Watch the corresponding videos below and then take action.

What to know before you price your home for sale?

In grad school we had a whole class dedicated to negotiations. We negotiated everything from a car sale, to home sales, to selling multibillion dollar companies. When it came to home sales, I learned a few things.

  • A home sale is a transactional sale. You are not building a relationship with the buyer. Once you sell the home to the buyer, you likely will never speak with him/her again. Since this is a simple transaction, you do not need to become buddies with the buyers. You do need to understand what is important to the buyer though. So make sure to ask lots of questions.
  • Your home is worth exactly the amount to which you and the buyer agree. It is not worth any more or any less. In fact, in my last home purchase, my mortgage guy was surprised when our appraisal came back for more than the purchase price. Why? Even the home appraisers put a very heavy weighting on the agreed upon price for a home.
  • Anchoring is very important. Anchoring is the art of putting an “anchor” price in someone’s mind. When done successfully, the buyer will stay close to this anchor when he counters.

    Let me give you an example. If your anchor price for your home is $250,000, a buyer is not going to counter with $1. The counter is going to be much close to $250,000. This lesson was made very clear to me in one particular grad school exercise. Six teams were tasked with selling a division of a multibillion dollar corporation. I was on one of the selling teams. The scenario for the sellers was very clear. We were selling off a power division or going to scrap it. We were given the sales numbers to show why it was failing and the amount we could get for scrap in the marketplace.

    Five of the selling teams, including mine, anchored our asking price based on the scrap pricing. We sold the division and made a handsome profit. We were happy, until we learned what the sixth team did. They got 17 times more than any other team that day.

    How did they do this? They anchored their price differently. They anchored their price as a multiple of earnings. This small difference had a huge change in the outcome of the negotiation.

I am not saying that you will get 17 times more for your home by reading this book. I can’t do that. Heck, you might even get less money. I am simply going to give you the tools you need to make sure that you look at all sides of the opportunity before you price your home for sale.

What if I Price My Home Too High?

This is not a concern of most homeowners because they already think their home is worth more than it is. One of the homeowners I interviewed in 2014 had his home on the market for $147 a square foot. All the other homes in his area were going for $93 to $97 a square foot.  Homes that had a lot of upgrades and pools sold as high as $124 a square foot.

Why was his home priced so high? His Florida home was on a hill and had a 5 car garage underneath it. This was very similar to a basement, which is rare in Florida. An unfinished garage, though, is never going to command a 50% premium on a home.  In his case, he had his home on the market for 3 months and never had one showing.

If you price you home too high, you are not going to get anyone to look at your home. You may get a few phone calls, but no lookers or buyers.  If you have your home on the market for a month and you do not have any showings in the first month, take a hard look at your price. But don’t worry, you can always lower it.

What if I Price My Home Too Low?

Pricing your home too low is no more of a worry than pricing your home too high. First of all, remember that you can always reject an offer - even if it is for your asking price.

If you price your home significantly lower than your home’s value, then you will receive multiple offers very quickly in a competitive market. A bidding war will ensue and you will sell your home very quickly. Some experienced sellers prefer to sell homes this way, but I don’t recommend it. In the end, you’ll get close to what the home is worth, but likely not 100%.

One of the houses we looked at in our last home search went on the market for $87 a square foot. This was well below the $100 a square foot that we felt the home was worth based on other recently sold homes in the area. We put an offer in two days after the home went on the market and there were three other offers already made at that point. We dropped out and watched the bidding war. The home finally went for $93 a square foot. This was still about $15,000 below a fair price but the owner was in a hurry to sell to avoid foreclosure.

On the other hand if you price your home for sale just slightly lower than what it is worth, you are probably not going to start a bidding war. You will, however, see offers that come in at asking price or just below asking price and tend to get a higher percentage of your asking price.

The benefit of pricing your home for sale below market value is that you will sell it faster. Lower priced houses sell faster.

Using Zillow to Price Your Home in 15 minutes or Less

This is what I call my 5 Minute Trick.  Once you are comfortable looking at listings on Zillow, you can price any home using this method in less than 5 minutes.  Don’t get me wrong, this should not be the sole way you price your home for sale.  However, when starting off, this is a great way to get a ballpark figure for how much your house can be sold.

Getting An Appraisal

Getting an appraisal is one of the smartest things that you will do when selling your house on your own. The appraisal serves multiple purposes.

  • The appraisal is a third-party validation of how much your home is worth. This will give you peace of mind when setting the listing price for your house.
  • The appraisal is a great marketing tool. You now have a packet that you can give to a prospective buyer showing him all the details of your house and why it is valued the way it is priced. You can, and you should, provide an electronic copy of your appraisal to every prospective buyer.
  • Use the appraisal as your anchor. When advertising your price, you can say it is priced at appraised value, or priced for X dollars or X percent under appraised value. Of course you don’t really want to advertise and it’s priced over appraised value.

Below you can listen to an interview I conducted with an appraiser when selling my Mom’s house.  He gives a great overview of the process.

  • icon
    Sample Appraisal

    Have you ever wondered what an appraisal looks like? Here is the appraisal that I paid for when selling my Mom’s house.

  • icon
    Appraiser Interview Questions Worksheet

    Print this worksheet to assist in your interviews of certified appraisers. All the questions are listed in a side by side format that will allow you to compare up to 3 appraisers.

Using Real Estate Agents to Price Your House

Good Real Estate Agents are good at pricing homes for sale.  They should be…they do this for a living.  But never trust one.  Watch this video to learn how to get Real Estate agents to want to do free work for you.  You will be completely honest with them that they will not get your business.

Home Value Estimator System

The home value estimator system was developed when I sold my first house and bought my second house. Let’s just say I did not take what other said at face value when it came to how much money I could get for my house or how much money I should pay for my next house. Plus, I’m a little bit of a research geek.

We are lucky enough to live in an age where information is easily accessible. Zillow is one of the greatest tools out there whenever it comes to selling your house. I used the data on Zillow to learn what other houses were selling for and how quickly they sold. This information was a gold mind.  When I was done with my research, I knew how much I should sell my house for and about how long it would take to sell.  In fact, I knew more than any realtor in my area.

Tips On Home Pricing

  • The Odd Amount Tip

    In the Book, Influence, researchers found that pricing an item at a specific price rather than a general price a yielded higher negotiated price.

    “Behavioral scientist Malia Mason and her colleagues Alice Lee, Elizabeth Wiley, and Daniel Ames believed that people could improve the result of their negotiations not just by ensuring that they made the first offer, but also by ensuring that first offer was a precise one. In one study, participants were asked to read an account of a fictional negotiation concerning the sale of a used car. In each case the participants assumed the role of the seller and received one of three offers made to them by potential buyers. One offer was an even-number offer of $2,000 and the other two offers had precise endings: $1,865 and $2,135. After each participant received their opening offer, they were then asked to respond with a counteroffer of their own. Interestingly, those sellers given an initial offer that ended in a precise number were much more conciliatory with their counteroffer, typically countering with an offer 10 percent to 15 percent higher than the opening offer. However those given the $2,000 opening typically countered with an offer that represented a more than 23 percent difference. Given these results, it seems that the small extra act of providing a precise opening offer in a negotiation can be a potent strategy that potentially reduces the gap between the two parties as the negotiation progresses.”

    Instead of pricing your house at $249,900, use $249,943.

  • Understand the psychology of Buyers

    Buyers are searching for homes on the internet these days.  In their searches, they are using filters to find the homes that meet their minimum and maximum needs.  One of the primary areas buyers filter on is price.  They have a lot of houses to look at and they don’t want to waste time looking at houses that are over or under their price range.  The image below shows the price ranges offered in Zillow.  While buyers can put in any price range, Zillow makes it easy for buyers to just click on a price range.  The point is, you don’t want to be outside of your target buyer’s price range.

    If your house’s value (or list price) is close to one of these breaks, go below the break rather than over it.  For example, if your house is worth $255,000, then consider listing it below $250,000 if you are willing to take less than $250,000 for it.  This will expand the number of buyers to which you appeal.

    Zillow

  • What to do before lowering your price

    Although FSBO sellers lower their price less often than sellers using a realtor, you may come to the point where you need to lower your price for your house. You may have priced your house correctly from the outset, but the right buyer did not come along. Now you are faced with declining market and need to lower the price of your house. At this point you probably have not listed your house on the MLS system.

    While I recommend not listing with the MLS system right out of the gate, there may come a time where it makes sense. When you’re faced with the choice of lowering your price by several thousand dollars, or paying a few hundred dollars to list your house in the MLS system, I strongly suggest paying a few hundred dollars to list your house on the MLS system.

    By listing your house on the MLS system you broaden your reach of buyers. Unless you’re in a very small town, you should see an immediate bump and interest. If after four weeks you still do not have any offers, list your house on the MLS system. Once your house is listed with the MLS system, do not lower your price for another 3 to 4 weeks.

    You can learn more about the MLS system in the marketing section of this course.

Previous Lesson

Go to Lesson 5 >>>>

Buy on Amazon $3.99