List price vs sale price

Often, the first dilemma a seller faces involves choosing between the list price or the sale price. Think of it like this: a list price is the starting home price that you set when initially putting your home on the market. The eventual price at which you sell the home is the sale price. Easy enough, right?

What’s counterintuitive is that you don’t choose these in chronological order. First, you pick the sale price—that reserve amount that you believe would be ‘worth it’ from a profit perspective. Do this by using comparable sales data (more on that later). After analyzing factors that influence local home prices and your already decided sale price, then you select an attractive list price to entice buyers. (Note: there’s probably going to be some difference—call it a ‘buffer zone’—between the two. In case of negotiations, your sale price should be the absolutely lowest number that you’d be happy accepting.)

Home price influencing factors

Where do you begin to get a sense of what’s reasonable? This isn’t a gut-feel business. A range of quantitative factors, such as comparable sales, location of the home, its size, and more influence a market’s home prices.

Here are some major influencers you should consider:  

1.       Location

Ask any realtor, and they’d say location is the most crucial factor influencing a property’s price. According to a recent survey by the National Association of Realtors (NAR), the quality of the neighborhood plays a decisive role for most buyers, and generally speaking, the suburbs are preferred location to more rural or urban areas. (You’re shocked, we know…)

To set a price for your abode, first determine whether it’s located in a neighborhood that your target homebuyers consider to be ideal. According to NAR, the majority of home buyers are Millennials (people in their mid-20s to early 40s). They prefer homes that are:

1. near public transportation and highway access,
2. situated in good school districts, and
3. foster a strong sense of community.

Also, today’s homebuyers are typically aware of location-specific risks, such as natural disasters. According to a survey conducted by Realtor.com, 78% of people factored in natural disasters when finalizing their preferred home locations. Is your region due for a major earthquake soon, or prone to wildfires? Perhaps you live in a low-lying coastal flood zone that’s gotten worse in recent years. Keep in mind that any perceived risk—especially when backed up by scientific data—could reduce your home’s sale price.   

2.       Comparable sales

It’s time to keep up with the Joneses. Take a magnifying glass to the homes in your neighborhood. Which ones that have recently sold are similar to yours in terms of space, style, features and lot size? By comparing the list prices and the sale prices of at least three homes from your neighbhorhood, you’ll have a clearer picture of what your pricing could look like.

What counts as recent? According to Zillow, the homes must have sold in the lastthree to six months. They should be within close proximity, too—that is, a quarter mile to a half mile of your address. 

But you don’t have to worry too much about data gathering and analysis. If you have a savvy real estate agent, they will help you with that.

3.       Home size

Yep, when it comes to real estate, size matters. This is another key price influencer. Your home value is estimated roughly by calculating its price per square foot. Dividing the sale price of the property with its square footage, you can get the price per square foot.

For example, the price per square foot of a 1,800 sq. ft home that sold at $200,000 will be $111. That’s a figure you can work with when analyzing other prices. By comparing the recent sale prices of similar properties in your neighborhood, you can get to a price point for your home. Studies suggest that U.S. homebuyers typically seek a median of 2,022 sq. ft of finished space.

So apart from the total square footage, know that many homebuyers prefer more livable space. (A huge garage is certainly a bonus, but you can’t live in it!) An extra bedroom, for example, or a finished family room in the basement would increase your home’s price.

4.       Upgrades and renovations

The less work you leave to buyers, the more they’re willing to pay. A recently installed heating system or a kitchen remodel, for instance, will make a huge difference to your home price. When done in a quality fashion, upgrades or renovations undoubtedly add value to a home. That said, not all remodeling efforts are valued equally.

The 2019 Remodeling Impact Report from NAR confirmed that home sellers had a 107% value recovery on remodeling projects such as new roof installation. But for hardwood refinishing? They recovered only the money spent on remodeling. It makes sense as one is viewed as a must-have while the other, a more cosmetic change or nice-to-have update.

Who sets the home price: you or your agent?

Setting a home price requires a lot of data crunching. If you aren’t the type that enjoys calculations and filling in spreadsheet columns, then it’s time to hire a good listing agent.

The hard part in price setting isn’t coming up with a range; it’s picking a competitive price that will reflect your home’s curb appeal and really attract buyers in the earliest days of it hitting the market. Your agent’s comparative market analysis (CMA) data will help set a competitive list price. Yet, it shouldn’t limit you from making suggestions and picking what is perhaps a better price.

Do take into account the prevailing conditions in your local market along with any planned development that will add future value to the neighborhood. For example, a tech hub that will be expanded near your neighborhood will bring high-skilled jobs and high paying workers along with it, further appreciating your home’s value in the process.

Setting the price

As mentioned, to attract buyers, you need to set a competitive price. Your agent’s CMA will give you some clarity. Yet, you can also do some quick homework to get closer to a competitive price.

Here are some tips on setting the right price for your home to sell.

1.       Know your home value

What’s your current home value? Use any online home value evaluator tool to get an estimate. Platforms such as Zillow, Realtor.com, Redfin, and others will get you an instant estimate of your home value.

The keyword, however, is ‘estimate.’ They project a value based on current market conditions and comp sales. But these platforms don’t capture the specific features or nuances of your home that may seriously boost its value.

Nevertheless, the estimates will give you a broader ballpark price as a starting point.

2.       Examine every detail of the CMA

The CMA is your key to smarter pricing; you want to lean into the data here.

Make sure you or your agent have closely analyzed the following information:

• Comparable listings – as mentioned earlier, look at the listings of similar homes in your neighborhood sold in the last three to six months for accurate price determination. To ensure a fair comparison, the comps should be homes of similar age. Values vary for properties constructed in different years, and price estimation changes accordingly.

• Neighborhood dividing lines – this includes any HOA boundaries; local school district limits; physical barriers like railroads, and freeways. Each divides neighborhoods into smaller sub-sets. Avoid comparing inventory from the other side of these dividing lines. 

3.       Find the price range ‘sweet spot’

Nearly 95% of homebuyers use online tools to search for homes. The tools allow them to search within their price range. It means, if your property’s listing price is above the prospective buyers’ price range, it won’t appear in their search results. Your home will be ‘disqualified’ before you even had a chance to catch their eye!

For example, price your property at $315,000, and a prospective buyer with a budget of $290,000 may miss it entirely when searching online MLS listings. Meanwhile, you might’ve been willing to accept a sale price as low as $285,000. Bummer.

To gain better visibility, you can try a strategy called price banding. For example, if there are four homes currently listed in your neighborhood, two of them between $275,000 and $280,000, and other two beyond $300,000, you can price yours within the ‘open’ band between $280,000 and $300,000.

4.       Know your closing costs

What will you actually make from a sale when all is said and done? Typically, sellers spend 8-10% of the final sale price on closing costs. These include agent commissions, taxes, insurance, escrow fees, HOA fees, attorney fees, and others. (It’s a necessary evil.) Knowing them in advance will help you set an accurate price that cushions the blow a little bit, helping you to obtain the profit you’re seeking.  

Pricing mistakes to avoid

Be it over-enthusiasm, stubbornness, or lack of knowledge, sellers often make many pricing mistakes, which can prove detrimental.

Steer away from these three common pricing mistakes:

1.      Neglecting issues with the property

You might have ignored that strange noise, cluttered basement or overgrown part of your backyard all these years. Neglecting them now, however,may prove costly as such issues will negatively affect your home’s value. Potential buyers could invoke an inspection contingency and negotiate to reduce its price to cover repairs and renovations.

It’s important to view your home with an objective lens. Identify the issues and make the necessary repairs to increase its value.

2.      Letting emotions get the best of you

Selling a home is an emotional decision for most people. But don’t let sentimental value dictate your home’s monetary value. Otherwise, you may end up overpricing it which may then drive away potential buyers.

3.      Not valuing an agent’s advice

Agents are pros at setting prices. They have the ability and expertise to assess the local real estate market both accurately and objectively. Ignore their suggestions at your own peril; it may prove to be very costly.

It’s no surprise that nearly 90% of sellers hire an agent to sell their homes. And if you want to go alone, consider this: according to the National Association of Realtors (NAR), sellers who didn’t hire realtors sold their homes for 18% less than the median prices.

Price setting is a science in itself

Most sellers set an aspirational price for their homes only to reduce it later. By then, the damage is already done. Seeing the property sitting on the market for too long, potential buyers tend to bargain for an even lower price, and understandably so. With every week on the market, their leverage in a negotiation grows. You can avoid this scenario by selecting a competitive price in the first place. Now you have the foundational knowledge to consider the comparative market analysis (CMA) data, avoid common pitfalls of pricing, and heed the advice of an experienced listing agent throughout the process. If you’re ready to get started on this and are committed to following this evidence-based approach, know that your work will pay off.