Setting the Price

Step Four

MARKET VALUE

Location – One of the qualities that make every piece of real estate unique from every other property is its location. This factor alone has the largest influence on the value of a property. A home in a rural setting sells for far less money than a home in a metropolitan location. Even if two homes are in the same area but one has a beautiful view and the other faces a busy street, value is affected. Properties are generally valued according to other properties that have sold in the nearby area. This is often because they share the same geography and benefits. Some examples of these benefits include proximity to schools, parks, hospitals, shopping and other improvements. You have no control over your property’s location and local sales affect the market value of your home.

Condition –One could think of condition in two respects. The first is the visual or apparent condition of a property. Think of two homes, identical in every respect. However, one is clean and has been kept as close as possible to a new condition while the other has not been kept up at all. The home in newer condition will sell for a higher price than the one that has not been kept up. Moreover, the difference in price will not be the cost to clean the dirty home. In fact, the cleaner home will often sell for well over the cost of cleaning. The reason behind this is likely because people place a lot of weight on the condition of a property and whether or not the property will have problems in the future based on its present condition. Also, a clean property will help prospective buyers to visualize their own space. This task becomes much harder for a buyer if they have to look over clutter and problems with the property.

Aside from apparent condition, one must also consider the actual condition of a property. Consider two properties that look identical in every nature. Behind the walls, however, one of the properties has a giant infestation of termites. It is easy to see why the actual condition of a property can have a major affect on the value of a property

Construction of Building – The type of materials used to build a structure has a definite affect on the value of that property. For instance, a hut made of grass won’t last nearly as long as one made of concrete – just think of the three little pigs. A property with a superior construction will often sell for more than another property comparable in all other respects except for the weaker type of construction materials.

Recent Sales of Comparable Properties – The current market value of your home is largely based on other sales of comparable properties in a recent period of time and under similar market conditions. If you could find a property that was exact in every respect to your home or investment and it was just sold in the same market conditions as the one in which you want to sell your property, this would give you the most accurate estimate for the value of your property.

Active Comparable Listings – Active listings are not a way to evaluate the current market value of a property - a person can put their property on the market at any price, even if it is unreasonable. The asking price, then, is merely an unrealized hope. With that said, however, if a similar property is available in your neighborhood, the asking price may influence the price you ask for your own property. To make the point, prospective buyers will often choose the cheaper of two identical properties.

Current Market Trends – The pressures of supply and demand have an affect on the current market value of your home. For instance, if there are a lot of buyers and very few properties on the market, those properties would be in demand by more people – this, in turn, increases the properties’ market value. If, on the other hand, there are many more properties available on the market than there are buyers, each buyer could look at the various properties and eventually find the right one for them. The market value, then, would not be pressured upwards as buyers would not be bidding against one another. Knowing things like whether the market is on the rise or fall can help one price a property correctly.

THE ASKING PRICE

When you first place your property on the market for sale, the initial price you ask is critical for a number of reasons. First, the price will fall in a range within which potential Buyers will be “scouting” for homes. If the price of your property falls in a range not suitable to the type of Buyers that would be interested in your property, you will be advertising to the wrong population and ‘miss the mark’. This may in turn cause your property to stay on the market longer than you would like. The asking price will also act as an incentive or disincentive to potential buyers. If the price is far too high compared to other similar properties that have sold in the current market, potential buyers will have little interest to pursue your property. Another more obvious reason for setting the right price is that it will dictate the point from which negotiations begin - it sets the starting point from which a Buyer will make their initial offer.

Aside from price itself, the asking price will influence the amount of time it will take to sell your investment. Generally speaking, a sharply priced home (i.e. a home listed for market value) will often sell more quickly. Overpricing a property will cause a property to stay on the open market for a longer period of time and can prevent a property from being sold at all. Underpricing a property will often ensure a quicker sale and, depending on the pace of the market, could bring in multiple offers resulting in a higher than market value sale price.

Depending on the strength of the market (determined by the numbers of Buyers and Sellers during a given period of time) and depending on what a Seller is trying to achieve, underpricing, pricing at market value or overpricing each have their strengths and weaknesses. With regard to overpricing, a Seller must take into consideration the inconvenience in having their property stay on the market for longer periods of time. First, the longer a property stays on the market, the more potential there is that Buyers might think something is wrong with the property. This, in turn, might affect the price a potential Buyer would be willing to offer. Second, a Seller will have to spend more time in keeping their property in the best shape if they want their property to sell for the best price.

Although the above are just a few of the major factors that a Seller must take into consideration, it should be quite obvious that the asking price is one of the most important components in controlling the risks and results of selling your home or investment.



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Selling Real Estate