Michael’s Corner – Episode 5 – How the heck do we price your home!?!
Educating & empowering you with the Hints, Tips, Tricks, & Insights to the real estate world! Always make sure you have someone looking out for your best interests!
Today in Michael’s Corner we’re going to cover something really cool! Something that you have almost guaranteed to be curious about at some point in your life! And that is… how in the heck do we go about pricing your home?! Do we just look at some neighbors? Is it all about a price per square foot?! If its all about location, how does that factor in?
Let’s start by getting the obvious out of the way! Yes, your neighbors do factor into this! But unless your neighbor has the exact same curb appeal, the exact same floorplan, the same interior colors and finishings (same cabinets, counters, flooring, wall colors and so on), has the same size lot, faces the same direction, and has just finished selling in the last 60 days, we are going need to do some work to get the pricing spot on! This is such a critical step to get right. My team and I are known for our industry-leading marketing for our clients, but all the marketing in the world won’t sell a home that is way overpriced. Today’s buyers are to savvy, and chances are, you know someone whose home sat on the market for 4, 5 or even 6 months with no offers, let alone a firm sale.
To do this right, there are a ton of factors we need to consider when we position your home in the market! This list isn’t in any particular order and some items certainly outweigh others!
Comparables (or Comps)
First, we’re going to look at similar homes that have been on the market recently in your area. We’re not just looking at current listings (sometimes referred to as ‘Actives’), but also sold’s, pending’s & expired listings as well. They all have their role to play and a story to tell. So what makes a comparable? In an ideal world, a great comparable will have a:
- Similar style
- Similar location (preferably with similar features such as what it backs onto)
- Similar size
- Similar bedrooms and bathrooms
- Similar age
- Similar quality of the interior
- And of course, sold very recently
Once we have a good cast of comparables, we can start to get a rough idea of where the pricing will be. However, to truly start to narrow down that range we’ll want factor in their ‘story’. If it is active, how long has it been on the market? Have they been reducing the price? Did they let it get ‘stale’? Or is the reason it hasn’t sold due to poor or no marketing? Maybe the home is horrendously out of style. There could be any number of indicators that we can decipher. If the home has expired, why? While you can’t always tell, often you can get a pretty good idea of why these homeowners weren’t able to sell.
The categories we put the most weight into are pending and sold. Why is this weighted so highly? The easy way to look at it is that someone has actually put their own money up and said: “Yes, I agree the home is worth this much”. After all, you can ask whatever you want for your home but it only matters if someone is willing to pay that price. So try not to get too excited when you see your neighbor’s home go up at a price way higher than you would have guessed… Wait until you see a sold sign pop up!
Side Note: Price per square foot can be a useful tool here if we’re lucky enough to have a very similar comparable, and it’s a great way to get a loose ballpark price if that’s all your after (typically about plus or minus 7%).
Side, Side Note: Sometimes we have a scenario where there are no reasonable comparables to start us off. This is a complex topic worthy of its own post, so we’re not going to cover that here today.
So! After a deep dive into the comparables, we’ve got our starting point! Now what?
The Home Itself
Didn’t we just cover this in the Comparables? The answer is yes, but no. A lot of things are considered at this stage. This area can leave room for interpretation as some of it isn’t something that can just be measured and compared like square footage. Opinions can and will vary on how much each of these affects the price.
Did you know that homes are very much like clothes in that things can come and go out of style? I’ll give you a great example; Right now, it is all about the white kitchen. Everyone wants white kitchen cabinets with matching light counters and simple backsplash. A complete sin even just a few years ago when it was all about the dark mocha stained cabinets! Before that, we had a long love affair with light and natural stains. If you spend enough time doing this, you can often guess the age of a home with nothing more than a quick glance at the color and material choices inside!
But it’s not just colors or material selections that we’re looking at here. The layout is also important. Current homebuyers in Calgary are largely looking for ‘open concept’ homes. Whereas in the ’90s, it was all about what we now call the ‘traditional’ setup (with a segmented layout). Often with two tv rooms (living room and family room) and two eating areas (formal dining room and breakfast nook) all on the main floor.
So how does this affect pricing? I’ll give you an example; In some Calgary communities, the homes are at an age (and with the right location), where we’re starting to see every home get either fully or heavily renovated. Looking at this we can actually see how this affects pricing in real-time! Some sellers will go as far as to open up the home by tearing down walls, while others take a simpler approach and just do a surface renovation leaving the original layout intact. You can actually see a measurable difference in the demand and price each home sold for! It’s honestly fascinating!
Other Important Features
Some of the other things we look for:
- The shape of the home (Is it in pristine condition? Is it a dump? Is it somewhere in between?)
- How old is the Furnace? The hot water tank? The roof? The Windows?
- Unique features
- Anything else that could change a buyers mind either for or against
But what about the location?
This is the thing we’ve all heard more times than we can count right?
Location plays a huge roll in valuing a home! Would you rather buy a home backing onto a nice green space with a view, or the same home backing onto a 4-storey condo complex? Obviously, the green space is the way to go all other things being equal. But would you pay more for that green space, and if so, how much? Or what about being close to public transportation? Or a school that your kids go to? Or a spot that has lake access? All are scenarios where we must determine exactly how much value to add (or subtract) based on where exactly the property is located and what’s around it.
We look at both the macro and micro aspects of the market. From a macro perspective, we consider:
- Calgary’s market as a whole
- Consumer confidence
- Demand trends
- Interest rates and their presumed trajectory
- How active is this section of the market right now? (For example, a townhome in the $300’s is going to be a very different story than a luxury home in the West end)
Once we’ve painted the bigger picture with that information, we’re ready to focus on the more micro aspects such as:
- General sales of this product type in this area
- Are sales increasing or slowing down in the area?
- Inventory levels of similar homes nearby
Are we offering an in-demand product with little to no competition at the moment? Or are we the 15th townhome that’s up for sale in a complex that originally sold with only 3 possible layouts? Going to market blind here is either a recipe for disaster or a big old pile of missed opportunities!
Now that we have the price figured out at a technical level, we need to focus on our pricing strategy. To do this at a higher level, there are different strategies to consider when determining the price to actually list your home at. These strategies can mean the difference between a sold home and one that just sits on the market getting stale.
We’ll be covering Pricing Strategy in more detail in next week’s episode of Michael’s Corner, so be sure to follow us so you don’t miss it!
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