Thoughts on Pricing Homes

Peony at Elizabeth ParkSuppose a home came onto the market late one afternoon, received an offer that evening, and went under contract a day later. Is this a good outcome for the seller? At first glance it seems like it probably is – they resolved their uncertainty quickly, and by accepting right away they presumably got an attractive price.

But maybe the fact that the first offer came in immediately suggests that the home is underpriced. And maybe all the other showings that are quickly scheduled for the following days supports that there is a lot of interest in the home. The seller may be missing an opportunity to let the market develop over a few days as the various buyers submit their best offers.

I’m a little mystified right now because this situation isn’t a hypothetical. One of the submarkets that I follow closely has very little inventory and a lot of interest from buyers. Recently I was able to get one of my buyers into a property before it went under contract, but even though I, and other agents, had other showings scheduled for the next few days, the sellers accepted the offer that was put forth the first day the property was on the market, within about 36 hours after the it was available for showings. Based on clients’ schedules, sometimes it is impossible to get all interested parties into a property on the first day.

Until the final selling price is known (after the property closes) it’s difficult to say for sure if the sellers maximized the home’s value. But unless the buyer put in a “Godfather offer,” an offer you cannot refuse, I suspect that the sellers may have done better for themselves by putting a hard deadline on showings a few days out, collecting offers and evaluating them all at the same time after everyone had an opportunity to bid.

In general, I see three common strategies for pricing homes.

1. Overprice and Hope to Find an Uneducated Buyer. This happens a lot, and for a variety of reasons. Most of the time the seller is convinced that their home is worth a certain amount and does not listen to any sort of analysis. There is always an agent that will take their listing no matter how unreasonable the price. Sometimes the strategy works, but more often the home sits on the market for a long time and doesn’t sell. When the seller is finally willing to listen to other opinions, their listing has become stale and they end up selling for less than they would have if the property had been priced properly from the beginning.

2. Price it Fairly. My preferred strategy is to look at the market conditions and the abundant data to try to set a competitive price that is neither too high nor too low. Homes priced well sell relatively quickly, and close to the asking price. The supply and demand dynamics of the submarket will determine how quickly the property sells.

3. Underprice for a Quick Sale. A variation on this final strategy is what I saw recently. Pricing a home on the low side allows it to compare favorably to its competition, generating immediate interest. The seller always has the option to accept any individual offer (if it is attractive enough), but may be best served by creating an auction environment by leaving the property on the market for a few days. For example, if an underpriced home is listed on a Wednesday afternoon, then they could start allowing showings immediately but give buyers a Sunday afternoon deadline (after an open house has also been held) for their highest and best offer. This would allow sufficient time for all interested parties to respond, yet not drag the process out unnecessarily.

The key variable in each of these strategies is knowing how your home is priced. Which strategy are you actually pursuing? And how do you maximize price based on your specific pricing strategy? These are scenarios you should discuss with your agent to make sure you’re not leaving money on the table.