Aug 07
14
FSBO: The Price
There are many ways to decide what to ask when selling your home. I’ll go through a few of the most common I’ve seen.
Ask low and hope to have a bidding war
This method has worked really well in recent years. I believe this will only work when it’s a sellers market which it has been in most of the country for the past 5 years. The time for this method may be fast ending. When you have a lot of people looking at houses within a price range you’re more likely to get that magical multiple offer situation. The biggest risk you run in pricing your home low is that if you only get one offer at or near the asking price, you may end up without an “excuse” for rejecting. That doesn’t mean you can’t reject it but it gives the impression that you’re just playing games with people. Nevertheless, if you get into that bidding war situation with multiple buyers it creates a lot of emotion among those that are bidding and it’s very likely that you could get more money than if you’d priced it at the “fair” price. As every toddler knows, something is much more desirable when someone else wants it too!
Ask high and let the buyer “talk you down” to the price you want
This is very common no matter where you set your price. This allows you to get about what you want for your house and it allows the buyer to feel like they’re getting a better deal. Often this is the way that everyone feels good about the deal. The risk, though, is if you price it too high it could cause people to look at the specs and the price and dismiss it out of hand. Anytime you decrease traffic to your house, you’re limiting your opportunity to find a buyer. Even with that said, most people assume that they’ll be able to talk the buyer down at least a little bit so as long as the house isn’t priced to outrageously, people will come and give it a fair shake.
Price it where you want it and be firm
This is the most straightforward way of pricing. When you set your price you make sure it’s fair and reasonable. When interested parties start talking about negotiations, if you explain to them that the price is firm and explain how you arrived at the price, most buyers will respect that (assuming your reasons are valid) and give you the full price offer your after. The biggest downside is you may alienate the “wheeler and dealer” types that just have to feel like they got a good deal but you’ll appeal to those who are uncomfortable with the whole negotiation process. When you’re dealing with people without an agent that can negotiate for them, many are more comfortable with this straightforward process.
In the 4 houses I’ve sold, I’ve tended towards pricing it at a firm price. Most of that was because I had to make what my loans required and I had little wiggle room to negotiate. When I would explain that the house is at the fair market value and that I have to make the price in order to satisfy my lenders, no one tried to talk me down.
On one occasion, I asked the price I wanted to get but I wanted to still try to possibly create a bidding war situation. I was selling at a hot time when the market was just heating up and I wanted to try and sell fast. I priced it at what I wanted to make on the house and what I felt was a fair market price. I then told all who looked at the house that I would accept offers until a certain date and time. This ended up intimidating some but in the end I ended up with 3 offers of asking price or higher. As I negotiated with each of the buyers in turn they increased their offer price until there was only one left. It didn’t increase the sale price substantially but it did get me an extra $5000 that I wouldn’t have had. Whenever looking for a multiple offer situation, give a deadline when all offers will be accepted. This increases your chances of not only getting more offers at once to consider but it creates better initial offers because people believe that they could be competing from the very beginning.
Always remember that buying a home is an emotional process and not a logical one. Any way to increase the emotion on the part of the buyers will mean better offers. Once a person has made an offer on a home, they have invested emotion into the process and the idea of not getting the home at that point is not desirable. That’s why the bidding war works so much in the seller’s favor.
What is the fair market price?
This is the hardest thing to determine. The way real estate agents determine a price to list houses is by pulling comparable homes that have recently sold. They have access to the MLS to give them that information. As a seller not using an agent, you don’t usually have access to the MLS. One way to solve this is to interview 2 or 3 agents to see if they want to sell your house. Agents will give you a “free” consultation and pull the comparables before they come to look at your house. That way you get the information without having to hire the agent. If you make it clear that you’re interviewing several agents before making your decision, it makes it easier to deflect the high pressure sales pitch. You’ve got to know yourself, though. If you’re susceptible to the high pressure, then it’s usually better not to even interview the agents. That’s the boat I’m in. I have a hard time saying “no” so I usually don’t even go there.
Luckily there are other resources to find out what houses have been selling for. In every county sale prices of homes are public record. The biggest problem is that the records aren’t usually in an easy to search format with the county. Recently there have been more and more websites that have compiled all the data for you and put it into an easily searchable format.
One of my favorite sites is Zillow. I found this site a couple of years ago. This site tends to have the records updated in their databases fairly quickly giving you the most recent information. They have a nice map system that lets you check on the recent sale prices and estimated prices of every house in your neighborhood. Zillow also will estimate your own house. One word of caution: Don’t trust zillow’s estimate to implicitly. It’s a nice place to start your work. Zillow can’t take into account the desirability of different floor plans. In one area it tended to treat ramblers with basement the same as split-level homes when a rambler usually comes at a premium. The best way I’ve found to use Zillow is to look at the list of the closest and most alike homes and use that as your basis of deciding what to ask. Zillow works great in some areas and not as good in others. It will depend on how much of your county’s information they have uploaded into their databases.
Another site I’ve used on occasion is Ditech. They have a free “e-appraisal” tool. It allows you to enter your address and it will give you a range of what your home is worth along with comparables from the surrounding area. It’s a good tool but not as versatile as Zillow. I use both to get as much information as possible.
If you want to know what other people are asking for their homes, you can check Realtor.com. This is basically the MLS information that they want to release to the general public. I’ve had mixed results using Realtor.com. The biggest problem I’ve had with it is that in some of the areas I’ve lived, they didn’t give address information so that it was hard to determine what neighborhood the homes were in for comparison. In other areas they would almost always give addresses. With Realtor.com you have to remember that these are the “asking prices” and not what people are actually paying for their homes. Some people will be asking high and others will be asking low and still others will be asking right on. Even with that, these are the prices that people will be comparing your “asking price” to so it’s good information to have.
Another factor you have to take into account is how fast you want to sell your house. If you have the patience to wait for “just the right one”, you might be able to price it a little high. The downside you always have to remember, though, is as a owner seller, you’re paying for your marketing so the longer it sits on the market, the more money you lose. There’s also the exhaustion of the whole selling process as well as the bad impression a house on the market for a long time has. If you have to move within a couple of weeks it might be advantageous to drop your sale price by 1% to 2% to give someone a real deal and get it done. In my experience, a fairly priced home will sell fast enough in most situations.
The last thing you have to take into consideration is how your house sells. In the last article, I explained how to get your house ready to sell. Depending on how much of that you chose to do will affect how much you’ll be able to sell your house for. A house is worth a certain price range. All houses with 3 bedrooms, 2 baths, 1500 sq. ft., in a certain neighborhood will sell for a price within the range. Where you are within that range is determined by how your house presents itself compared to the others. If your house has nice landscaping and no bad spots inside with nice upgrades, it will sell at the top of the range. Anything less will sell somewhere below. What you decide to do in the previous step will affect what you will be able to get for your house.
Myths
Now let me just talk about a couple of myths about house prices.
- I set the price of my house.
You actually don’t set the price. The market decides how much your house is worth. You can influence what the market will decide by what you do to the house, but not matter how much money you put into it or you think it’s worth, it will be the market that decides. Too many people overprice their homes because of the amount of money they put into renovations or because of sentimentality or because of denial of current market conditions. Just because you could sell your house for $200K last summer doesn’t mean you’ll get that much in November.
- If I sell my house by owner, I’ll have to reduce my home price because people will be expecting a deal
This is the biggest scam that realtors try to perpetuate. I’ve seen it and heard it all over the Internet and from realtors’ mouths. A house is worth a certain price. If you choose to pay a realtor for marketing and to do some paperwork, then that is what the 6% commission is going to. If you choose to do the hard work yourself, than that money goes to you. There is no reason to reduce the price of your house just because you are selling it by owner.
