Pricing real estate is not an easy task for owners wanting to sell a property because of two reasons, at least: First, having their emotions highly involved and, second, not having the proper tools to price a property correctly.

Sometimes, owners wanting to sell their properties by themselves (‘For Sale by Owner’) offer a real estate for sale far below the market value because they are not aware of the actual price trends in the area at the time; and, by doing so, they throw money away unknowingly. Most owners, however, do the complete opposite. When wanting to sell a property they price it too high, which often causes both keeping the property (active) for sale much longer than expected and having to sell it for less than if they had priced it well since the beginning. The causes that usually lead to this costly mistake include:

a) They have searched on free online sites (e.g., Zillow, Trulia) the asking prices of some properties for sale in their area or have attended open houses nearby. Not only, those asking prices are just that, ‘asking prices’, but also there are other factors that may cause variations in value from property to property, even if they are in the same area: lot size and shape, building size, style (architecture), improvements (e.g., swimming pool, home theater), upgrades (kitchen, baths, floors, etc.), age, current condition, location (e.g., corner, distance from noisy roads, view, etc.).

b) The owners are very attached to their properties because of all the efforts made to have acquired them and the wonderful memories they have created there. Actually, some owners, although wanting to sell a property, say something like: “If someone pays me $XXX, I will sell my property. But will not sell it for less; I would rather die here, instead.”

c) They have spent a lot of money customizing the property with unique improvements and/or upgrades (including the most expensive brands and model of the moment) for which they expect the buyer(s) to be willing to pay for such extra cost. Moreover, some sellers think that buyers should be happy to pay more than the original cost of those expensive improvements and/or upgrades  in consideration of the time and effort being used to choose the items so well and to put everything together. Of course, the issue here is a confusion between “Cost” and “Value”.

Cost vs Value:

To explain the difference between these two concepts, I will use the example of selling a preowned car. Imagine someone is selling a car with upgraded wheels which cost a year ago was $2,200 when they were brand new. While looking for similar cars on different online sites, he/she searches for the  same brand (make), model, year, trim (e.g., limited edition), mileage, and color within 200 miles radius. After  finding several other cars like it, a person who does not understand the difference between cost and value would list the car for sale at the average price of those other cars, plus $2,200 that was the cost of the luxury wheels. Potential buyers, however, although may be attracted to this car because of the upgraded wheels, will not likely pay that extra cost. Simply because: 1) The car does not need those wheels to be a good car. 2) The wheels are not brand new, so no one will pay full price for them. 3) Those wheels, although look nice on the car, they are not necessarily the favorite choice of the potential buyers for them to be willing to pay the cost price.

In essence, what those upgraded wheels could do in the used cars’ market would be bringing more potential buyers than other similar cars for sale. But buyers would want to pay just the value of the vehicle based on the average price, not more, and get the upgraded wheels for free… The same example could be applied to a car with a premium sound system and powerful custom speakers in the trunk.

Something alike happens in real estate. Unless a property is so unique due to its exceptional location or its special historic, artistic, or architectural value, most buyers will be willing to purchase such property for its fair market value, which varies depending on the ‘Supply and Demand market laws’ at any given time, and have any improvements included in the property for free. Seldom times, however, few buyers are willing to pay more than what the property is valued in the market, but will certainly not pay up to the original cost of the improvements/upgrades in it.

Cash sale vs financing

A paramount factor for which a property should not be overpriced when listed for sale is the high probability of being professionally appraised during the purchase process. Let’s see; if financing is being used to purchase the property, an appraisal is required. And buyers paying cash, sometimes also order an appraisal to make sure they are not overpaying for the property. So, if the appraised value is lower than the purchase price agreed in the contract, the seller will have two options: a) Lowering the price to the appraised value to be able to sell the property to that/those buyer/s. Or b) Keeping firm the price originally agreed and, thus, risking to lose the sell at this time and having to change the property from ‘pending’ to ‘active’ status again in the Multiple Listing Service (MLS), for which some valuable time would have been wasted. This takes us to another important selling factor in real estate.

Time in the market

The first three months a property is for sale are very important, even the first six months. So, if an overpriced property luckily has a buyer willing to pay the high price or close to it within the first three months, but a low appraisal causes the cancellation of the purchase agreement and the seller does not lower the price, very precious time would have been wasted. And the longer the property is for sale, the lower are the chances to sell it for the asking price or close. To be able to sell a property that has been in the market a long time, most likely, the seller will need to drop the price, probably more than once. Nevertheless, although lowering the price will bring the attention to potential buyers (and their agents) again, some of them will have the idea that such property may have something wrong, for which not only they may want to pay a bargain price, but will also be extremely cautious with the inspections trying to discover if there are serious faults.

Comparative Market Analysis

Here is why a Comparative Market Analysis (CMA) is a very important tool to price a property according to the current market conditions. Although not as precise as an appraisal, it also includes information of comparable properties active for sale, pending, and recently sold in the area. The actual selling prices of recently sold properties provide a great idea of what buyers are willing to pay for them. The time in the market of the comparable properties is also important: if properties are selling within the first three months, even six months, it is a sign that the market is ‘moving’ at a normal speed and, most likely, the listing prices are approximately right.

Now, although most real estate agents/brokers are able to perform a CMA to price a property for sale in a tight price range, some agents/brokers accept to list properties for unrealistic high prices because either:

1) The seller does not want to lower the price and the agent/broker fears to lose the listing.

Or

2) In order to get the listing, some agents/brokers promise the property owner(s) to sell the property for a higher price than what other agents/brokers suggested, implying (sometimes claiming) that they are better than the rest.

The common irony is that after receiving a fair value offer for such overpriced property from a potential buyer, the agent will pass it on to the sellers with the strong recommendation to accept it with the excuse that such price is what buyers are willing to pay for a property like theirs in the current real estate market. So, why did they accept or promise to sell the property for more than they knew it should have been priced since the beginning? And who are the only losers in this kind of situation? The sellers: time wasted (if they do not accept the low offer), experiencing frustration, and, anyway, having to lower the price sooner or later, sometimes even more than what they would have needed to if the property had been listed at a correct price since the beginning. Of course, these agents/brokers are just in a race to get as many listings as possible.

In summary, when planning to sell your real estate property, PRICE IT CORRECTLY. Not too low, but not too high either to avoid falling in the “NASTY TRAP OF OVERPRICING” explained above.

If interested in selling your property in Ocala (FL) or surrounding areas, contact us at (352)266-2782 for a FREE CONSULTATION and FREE CMA (Comparative Market Analysis).