Michael’s Corner – Episode 6 – Pricing Strategies 101
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!
Welcome back to another brand-new episode of Michael’s Corner! Today we’re talking about pricing strategies! These can mean the difference between selling your home… or not!
Why is it important?
First and foremost, why is this so important? For those that are aware, right now in Calgary, the average seller has about a coin-flip (or 50%) chance of selling their home. For those fellow number geeks out there, we’ve seen just about 30,000 new listings go live so far in 2019, with only about 15,000 of them have actually sold. Not exactly great odds. This market is a great example of why pricing strategy matters.
At a high level, there are three basic strategies when it comes to pricing your home: above market value, at market value or below market value.
Above Market Pricing
Say we push the envelope on price and list your home above market value. What will happen?
The pros are that you may just find that perfect buyer and set a new value for your home and the neighborhood. However, this is not a likely scenario (especially in our current market). What’s more likely is a situation that would fall under the “cons” category of pricing your home above market value. More often than not, this strategy will have you headed towards too much time on the market and/or an expired listing.
As we discussed in last week’s episode of Michael’s Corner (check it out here), there is a direct correlation between time spent online and the final selling price (assuming you do in fact sell).
Appealing to agents
To sell your home, you need to attract not only the attention of buyers but the agents who represent those buyers. Oftentimes when a home is overpriced, agents won’t even mention it to their clients or they will simply tell them they know that it’s overpriced and not to waste time showing it.
In today’s market, where everyone begins their home search online and sets price filter preferences, there’s a chance that your overpriced home will be missed by realistic buyers. My job, as a top realtor, is to be open and honest and keep the end goal in mind – sell your home for the best price, in the quickest manner.
Put yourself in the shoes of a buyer. If you came across a home that is overpriced, naturally you’d think to yourself, “why”? Then you’d wonder if it was worth your (and your agent’s) time to find out the answer to that question. Chances are, not many will try to find out why and will simply move on. Don’t make it more difficult for buyers to find your home!
Another thing to think about if considering pricing your home above market value; Let’s say you do find a buyer for your home. For the buyer to obtain a mortgage, the lender may require an appraisal. Appraisers often look at comparable homes in the neighborhood to determine value. If the appraiser does not feel the home is worth what the buyer has offered, this can cause issues on the financing for the buyer and the sale falling through.
This pricing strategy is typically reserved for someone that is looking for a needle in the haystack. Someone who doesn’t mind their home sitting on the market for a very long time, potentially years, just hoping to get that perfect buyer who loves the home so much they are willing to pay more than the market deems its worth.
At Market Pricing
Just like there are pros and cons for pricing your home above market value, there are pros and cons for pricing it at market value.
Certainly, you want to get the most money for your home as possible, so it can be appealing to price over market value. But like we just covered, that’s not always the best idea. Pricing at market value gives you several advantages.
With buyers today starting their home searches online, the first search criteria they typically set is the price range. Every buyer is looking to get the most for their money, but there’s a range in which they’re looking. By pricing at market value, you increase your chances of showing up right in front of a buyer who can afford your home. This is obviously a good thing.
Appealing to agents
When agents who represent buyers see your home listed at market value, they will be more motivated to bring their buyers to look at it. It won’t leave them wondering why the home is over or underpriced.
Pricing your home at market value makes the appraisal process go smoother and doesn’t hold up a buyer getting their mortgage. Being realistic with the value of your home can lead to a smoother transaction all around.
Now, what about the cons? Well, the downside of pricing your home at market value depends on how you look at it. Certainly, there is a chance you could potentially be leaving money on the table, but that’s what negotiating the transaction is all about!
There’s also the fact that it might not get someone ‘excited’ to go see it right away. Pricing at market value tends to create a reasonable reaction but rarely creates excitement. Excitement can help get someone ‘off the fence’ and into a purchase agreement, often faster than they may have planned. Given that my job is to help you get the most money for your home in the shortest amount of time, excitement can be very useful! Which brings us to…
Below Market Value
Pricing your home below market value does not necessarily mean that it will sell below market value. When you price your home lower, you can oftentimes create a frenzy among buyers and create competition, driving up the price. Have you ever watched an auction? It’s like that. Everyone wants to acquire the home for a bargain, but the demand and attention it gets from other buyers increases the resulting sale price.
This pricing strategy only works well in certain markets. Depending on the nature of your market, your real estate agent can help you determine if this approach is right for you. Traditionally, this strategy works best in moderate to high inventory markets. In a market with low inventory when most listings are getting multiple offers, this approach might not be ideal.
If pricing your home below market value appeals to you, here are a few pros and cons to understand first.
Appealing to agents
When an agent sees a home, fitting their client’s needs, and for less than the market price, they are usually quick to encourage their client to view the property (and make an offer if it’s the right home). Experienced agents know that these houses don’t often stay on the market for long. They often result in a frenzy that attracts more buyers and multiple offers with the final sale price being over asking as a result.
The risk with this pricing strategy has less to do with the appraisal and more to do with the buyer. While the buyer may be bidding on the lower price, they may not be qualified or capable of getting financing for the actual or intended sale price.
This strategy can be successful if you can create the excitement we discussed earlier. But if the demand is not there, it means you could result in a sale price lower than the market value of your home.
On the flip side of this, if the demand is there, it could mean that your home sells very quickly for a price above market value (even though you priced it below market value).
Strategy matters. Period. There are, of course, finer points to the approaches we’ve covered today, but you’ll want to dig into those with your realtor to make sure your home is positioned for success.
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