Things to Consider When Pricing Your Home

Correct pricing of a home has always been essential in order to attract a maximum level of interest from prospective buyers. In the strong buyers’ market that we are currently experiencing, it becomes even more important to get this all-important part of the process right. When a home goes on the market, the biggest interest level comes within the first 2-3 weeks. Real estate agents keep a very close eye on all new listings and will make an instant determination as to whether the home is going to be of interest to their clients or not. Price is obviously not the only factor that comes into play but it is certainly one of the biggest. The greater the sense of urgency for an agent to get their clients out to see a home, the better it is for the homeowner looking to sell. After those first few weeks, the interest level in the home starts to decline. Although a price reduction can generate a spate of renewed interest, it is still difficult to recapture the initial level of interest that comes with the first launch of the home on the market.

An important step in pricing a home for sale is to obtain a CMA or comparative market analysis from your real estate agent. This will show what similar homes in the area have sold for in the past 6-12 months and will provide you with a good indication of what the market is doing in terms of actual sales. In today’s climate, however, it is also equally important to know the listing price of other homes on the market. Just because your home is not in foreclosure or is not a “short” sale does not change the fact that you are still competing with the price of these and all other homes on the market. Finally, ask your real estate agent to provide you with an absorption analysis. This will give you a very clear indication of how long homes are remaining on the market at certain price points. It will greatly help you understand where your home needs to be priced in order to sell the most quickly.

One of the biggest challenges for a real estate agent can be persuading a homeowner with a set sales price in mind that this number might actually be unrealistically high. The homeowner may be unable to see beyond the cost of the improvements and updates that have been made. It can be a shock to realize that some of these improvements do not necessarily increase the value of the home but simply keep the home in line with what is expected in that particular price range or in that particular neighborhood. Jennifer Wimbish, a State Certified Residential Appraiser with Appraisal Source in Chelsea, notes: “I find as an appraiser that most often homeowners are surprised at values placed on certain aspects of their home. Over improvements in neighborhoods of similar tract-built homes, custom homes that become too custom or specific to a certain homeowner’s taste, or items that are general maintenance items that homeowners look at as upgrades or improvements are some of the most common ways in which the homeowner can inadvertently overvalue their home”.

A common misconception that surprises many homeowners is the value that can be added by a finished basement. A lower level walkout can add as much as $10,000 to the value of a home versus one that has no exit or daylight windows but no matter the quality of finish, window area, or walkout amenity, if any part of it is below grade, it cannot be included in the square footage of gross living area. This is not to say that a well-finished lower level will not increase the market appeal of the home, just that there is a danger of overspending when it comes to this part of the home. Notes Wimbish: “When making improvements keep in mind what the cost is, what the return will be and how it will affect the resale value. It may often be the case that the cost of the improvement exceeds the return on value but that this improvement is standard to home in the area.”

Even properties where homeowners have been careful not to overspend in their improvements are at the mercy of the recent market downtrend in terms of pricing. Statistics by the Michigan Association of Realtors (MAR) show a 9.03% annual depreciation in sales prices in Washtenaw County. Notes Pete Hendershot, Senior Staff Appraiser with Affinity Valuation Group of Ann Arbor: “This comes as a direct result of an atypical amount of foreclosures throughout the county, builders reducing inventory and the relocation of 1,700 employees that nobody could have predicted, all causing an oversupply of inventory.” Hendershot does add some positive news, however: “As those homes have come off the market, and new government programs look to help those in crisis, our normal market is already starting to return. In review of our last quarter of activity, we’ve seen a dramatic rise in sales and fewer home sales with atypical seller concessions. Overall the market is still adjusting but appears to be stabilizing as prices, relative to the change in median sale prices locally when compared to the state as whole, are all trending and following a similar pattern.”