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5 Most Common Myths About Pricing a Home

5 Most Common Myths About Pricing a Home

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What’s the most common reason a home won’t sell? In today’s market where we’re seeing a 20% increase in home sales in 2012 compared to 2011 chances are it’s because it’s overpriced.5 common myths about pricing when selling your home

The real estate market has changed over the past few years, and what you paid for the home is not necessarily the price it will sell for. When a home’s selling price is not aligned with comparable homes in the area, home buyers won’t even look at it. You can price a home for any price you want, but if the home doesn’t get showings it won’t sell.  The fact is if the home is priced right, it will sell.

Here are 5 common myths about pricing when selling your home:

Myth #1. Keep the Home on the Market Until You Get the Price you Want

checkFact: The opposite is true: the longer the home is on the market, the lower the average sale price.

Some sellers will even say, “We’re in no rush to sell. We can wait.” But leaving the home on the market drives the price down.

We ran a report of the homes sold in Massachusetts from January to December of 2012, and compared the days on market for total homes sold.  As you can see from the chart below, when a home is priced correctly at the very beginning, it will sell faster and for a higher average price than homes that stay on the market for a long time.

Days on The Market Average List Price Average Sale Price Difference
0-30 $ 398,964 $ 392,156 1.7%
31-60 $ 389,695 $ 371,060 4.78%
61-90 $ 384,012 $ 356,688 7.11%

Source: MLS Property Network, Inc. Total Sold; Days on Market: January 2012 to December 2012

For homes on the market longer than 30 days, the average sale price was much lower than the price the home was originally listed at. For instance, homes on the market 31 to 60 days sold for $18,635 less than the listing price. Homes on the market even longer—61 to 90 days—the homes ultimately sold for $27,324 less than the original list price.

These numbers were true for all price ranges. Homes below $200,000 priced correctly initially sold just as quickly as homes priced correctly above $200,000.

Myth #2:  A Home’s Assessed Value is the Same as the Market Value

checkFact: The market, not the assessed value, will determine the selling price for your home.

The assessed value of your home is how your property taxes are calculated. Property assessors are not required to change the assessed value of properties to reflect the current market value, and in today’s market, these two values can differ greatly.  The assessed value of your home has very little relevance to its market value price.

Myth #3: Calculate What You Spent on Upgrades into the Home Price

checkFact: The amount you invested in improvements cannot always be recouped dollar-for-dollar in the asking price for your home

This is especially true for investments in a home’s basic structure or maintenance—such as a new roof.  In a cost to value report from Remodeling Magazine that compares the average cost of remodeling projects with the value these projects retain at resale in the metro Boston area, a bathroom addition will only recoup about 51% of the total cost. Some renovations, such as a new deck or siding, can yield a larger return, but at most 70% of the cost.

While it’s true that some home remodeling projects add value, depending on the market, sometimes you won’t get a 100% return on the total amount of your investment when selling your home.

Myth #4: Base the Home Price on What Similar Homes Are Listed For

checkFact: The selling price for comparable homes in your neighborhood, not the listing price, is the most accurate factor in determining price.

Many home sellers incorrectly list the home price based on what other homes nearby are listed for. Homes can be listed at any price, but the price they actually sell for is what should be used in the pricing formula.

Myth #5: Price the Home Based on What You Need or Want

checkFact: Buyers don’t care what you want for the home. They will only pay what they think the property is worth, and only what they are willing to pay.

Some home sellers price a home according to what they want or need. A home seller may have a number in mind that they want in order to cover moving costs, commission, or to make a profit. The fact is, if the list price for a home isn’t based on the current market value of the home, it will sit on the market for a long time. Buyers will look at how long the home has been on the market and wonder what is wrong with the home and why it hasn’t sold yet, resulting in no showings. Buyers are not interested in overpriced properties, and as we saw in Myth #1, the longer the home is on the market the less the average selling price.

Remember, homes sell for the most money when they’re sold in the first month, so price it right from the very beginning.

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