Walk Away a Winner: Sellers – Stick to Your Guns
In a hot market, as a seller you want to get the highest price you can. That means using a variety of strategies, some sound . . . some not so sound. First off, however, you need to know just what your home is worth.
To find out, do as buyers do—become a “pretend buyer” for a few weekends and, with your agent, go out and see what your competition is. You’ll quickly come to see market value. Also, have your agent prepare a CMA (comparative market analysis), which should give you an excellent idea of where the price was.
Understand “Forward Pricing”
If there are multiple bids on a home, you have to ask yourself, “Was it originally priced too low?” I would argue that, yes, that’s often the case. The home was actually priced under market, hence the competitive bidding.
Think of it this way. Prices in your area are moving up by 10 per cent a year (or 20 percent or whatever). The last home that sold in the neighborhood went for $300,000 six months ago. What is a similar home worth today?
If you answered $300,000, or even $305,000, you’d be wrong. It’s probably worth $315,000. That’s pricing it forward to the current market. The reason, of course, is price inflation. If prices are moving up 10 percent a year, then in half a year they’ve moved up 5 percent. If the home was worth $300,000 six months ago, based on comparable sales, then it’s worth 5 percent more today, or $315,000. At that price, it should move quickly with full-price offers. (If there are competitive bids, then prices are moving up even faster, and you should ask more.)
Don’t simply take what the last home in the neighborhood sold for and make that your price. Forward pricing is based on inflation. You can find out what your local market is doing by checking local newspapers. They often run stories on housing price increases.
A home may be selling for more than the highest price previously achieved in a neighborhood and still be underpriced.
Some agents will suggest to sellers that they purposely underprice a home in order to start a bidding war. It works like this: Instead of for ward pricing your home at the current market price of $800,000, you instead price it at $750,000 (or some other lower figure).
Buyers learning of an underpriced home may immediately come looking and start making offers. Then, you as a seller simply sit back and hold off making a selling decision for a few weeks until the buying frenzy has forced the price up above the $800,000 mark. You get a quick sale . . . and for more money.
Unless … no buyers show up. Or unless buyers show up and make full price offers at only your below market price. No, you don’t have to sell in that circumstance, but you might still owe a commission to the agent.
Yes, underpricing can work—unless it works against you.
The Bottom Line
In a hot real estate market, knowledge is king. Know what the home is worth. And negotiate for all you’re worth.