Set the best asking price for your home to maximize profits

How the asking price of your home can influence the sale price

Every home seller aims to sell as fast as possible at the highest price. But setting the right asking price is crucial to achieve that goal. Correctly listing the price of a home is the best marketing technique. Statistics clearly show that overpricing a home will cost a seller more money, more often than not. The following article talks about how to decide on a selling price and the pitfalls of overpricing. Also, the strategy of underpricing a home is discussed.

The statistics and odds of selling a home

Statistics clearly show that the first few weeks of selling a home are most crucial. This relatively short window presents the best opportunity to sell the home at or close to asking price. However, the asking price must be fair and fall within the fair market value. And it is important to realize that setting that right asking price takes research and some strategy.

For example, let’s assume the CMA, the comparable market analysis, shows that the property ‘should’ sell for between $490,000 and $ 510,000. To get the best results as a seller, it is important to set the asking price somewhere between those values.

Several scenarios are possible for pricing. If this home is priced, for example, at $499,000, it may sell for $495,000 within a few weeks. If setting its price at $519,000, statistically the home will take longer to sell, and again, statistically, may end up selling at $490,000 or less.

Strategy of pricing a home below market value

Overall, the theory is simple when setting an asking price; the lower the price, the larger the group of potential buyers.

Pricing a home below market value increases the chance of attracting multiple offers, resulting in a faster sale. It is not uncommon that homes priced below market value sell at or above asking price.

However, this scenario is slightly riskier, and its success really depends on the particular property, its demand, its current competition, and the current market conditions. Therefore, it is important to discuss this scenario with your realtor before deciding.

Overpricing and the danger of getting market stale

Overpricing a home usually leads to fewer showings, and fewer showings mean a reduced chance of receiving an offer. Consequently, a home that lingers on the market longer can become market stale. A home getting market stale means there is a higher chance of buyers wanting to offer a lower and lower amount. Sellers need to realize that a buyer is very quick to judge that something must be wrong with ‘that home’. And a home that stays on the market too long gets a stigma.

Sold prices tell the real story! Request a free monthly Market Report

All sold data, includes home features, number of days on the market and the ratio list price vs selling price. Sold data is a great way to understand the real estate market in your community.

The cost of chasing the market down

Calgary’s real estate market is somewhat of a roller coaster. It has seen many ups and downs in the past, and it will see many ups and downs in the future.

Overpricing a home in a declining market leads to necessary price reductions. The danger is that price reductions in a declining market come too late to be effective. By the time the price reduction is in place, the home stays overpriced, and, yet again, viewings continue to drop. This effect can spiral further down in time rather quickly. And, statistically, these price reductions cost a seller thousands of dollars.

Additionally, any price reduction can signal to the buyers that the seller is now motivated, giving the buyers more leverage to offer an even lower price. In other words, the seller has just created a weaker position in negotiations.

Helping your neighbours sell their home

Overpricing a home essentially makes the competition down the street more appealing and helps sell the neighbour’s house. When all things are equal, any buyer prefers to pay the least possible price. This is even more risky in the newer Calgary neighbourhoods where many homes look similar. Why would a buyer choose your home when s/he can get the same features for less?

Buyers know the value of a home

Hoping that a buyer will pay above market value by overpricing a home? Perhaps this scenario has happened in the past, but the influence of the internet nowadays is quite profound. Sold prices of homes are at the public’s fingertips. Buyers can and will do their own research to know what a home is worth.

Besides, most buyers are on a budget. This budget is set by the lender, based on income, debt ratio and several other things. Most buyers understand what they can buy within this budget. And while shopping for their new home, they only look at those homes that fall within their budget range. Any home over that budget gets passed unseen.

Traditional catalogue vs internet browsing for a new home

The internet has changed how buyers are looking for a home and how homes are presented to buyers. Before the internet, a buyer flipped through a physical catalogue with all the homes for sale and updated weekly, on Mondays. This old practice of flipping through home listings has now been replaced by browsing the internet. Via the internet, a buyer gets instant access to see all new listings, within minutes after they go to market. Therefore, nowadays, a buyer is much more informed and educated on the market, market trends, pricing and what is available to them.  

Additionally, the internet allows buyers to set specific search parameters. A seller must understand that pricing parameters are crucial because now buyers only see homes within their budget. So, even if a home is priced $100 over this budget, it will not appear in the buyer’s potential list of homes to consider viewing.

Realtors, lenders and appraisers also contribute their ‘two cents’

A buyer is never alone in the purchase process. In a way, a seller has to sell the home more than once; to the buyer, to the realtor and to the lender. And to an appraiser if an official appraisal is involved. Firstly, a realtor can quickly decide if a home is overpriced by doing a CMA, a comparable market evaluation. Next, a buyer’s budget depends on the lender’s approval.  And last but not least, many lenders consult with an independent appraiser to determine the value of a home. If a buyer offers more than the appraiser’s evaluation, the lender may decline the mortgage. Although this scenario is not very common, it does happen. And most buyers are not able, nor willing, to pay the shortfall out of pocket.

What is market value and how is it determined?

Market value is the price that buyer and seller are willing to agree upon in an open market under normal conditions. There are a number of factors that determine the market value of a home. All these factors come together in a CMA, a comparative market analysis. In the article how to find your home value, we explain this CMA and its creation in more detail. In a nutshell, the following elements usually determine the market value of a home:

• Location
  • The convenience and proximity of amenities such as schools, parks, public transportation and stores affect market value. Also, the quality of neighbourhood planning, future plans for development and zoning will influence a home’s current market value.
• Property features
  • The age of the home, its size, layout and style, and the quality of the construction affect market value.
• Condition of the home
  • This includes the general condition of the home structurally and cosmetically, as well as the functionality of electrical, plumbing, heating, cooling systems, etc.
• Comparable properties
  • What other properties in the same area sold recently? How do these sold properties compare to the subject property? A market analysis (CMA) gives a general overview of what sold, but also what is currently for sale.
• Current Competition
  • Competition is another important factor when setting an asking price. The more options, the greater the likelihood the buyer will choose a neighboring home with a slightly lower price. This is especially true in those communities with homes that all look similar, the ‘cookie cutters’.
• Motivation
  • Motivation plays a big role in setting an asking price. A seller who needs to relocate for work or perhaps needs to sell due to financial issues may set a lower asking price.
• Market Conditions and economy
  • Obviously, market conditions and economy are significant factors when setting an asking price. Is the current market a seller’s market or a buyer’s market? What are the current mortgage rates? Is there talk of a change in these rates? How much is the current unemployment rate? What immigration rules apply that may affect the supply and demand? These are just a few examples of the many factors that apply.

The type of real estate markets

As mentioned, knowing the type of market is an important part of setting an asking price. Therefore, a short explanation; there are 3 different types of real estate markets. And each market has an influence on pricing, regardless of the state and location of the home.

• Seller’s Market
  • A seller’s market is considered a “hot” market.  This type of market is created when the demand for homes is greater than supply. Or, in other words, when there are more buyers than sellers. In a seller’s market, homes usually sell very quickly, and the chance of multiple offers increases. Statistically, in a seller’s market, homes usually sell close to or above asking price.

• Buyer’s Market
  • A buyer’s market tends to be a ‘slower market’.  Supply is greater than demand because there are more sellers than buyers. Homes in a buyer’s market are likely on the market for a longer period, and home prices may even decline. In this market, buyers will have more selection and more chances of negotiating a better price. It is the type of market in which a seller may consider pricing the home a little below market value.

• Balanced Market
  • In a balanced market, the supply equals demand, and the number of buyers and sellers are somewhat the same. When the real estate market is considered balanced, the playing field is more level in terms of negotiations. Pricing a home in a balanced market, though, still needs a good strategy in order to receive a fair price for the home. Much will depend on the personal motivation of the seller.

Why you need a professional

In Calgary, where the market can shift rather quickly, having a realtor with experience and knowledge is important. Every home to sell is unique, and, as we mentioned earlier, many factors go into the determination of an asking price. Realtors have full access to details that are important. However, experience remains the most important factor in setting an asking price.

How to do your own research on the market value of a home

The Calgary Real Estate Board offers monthly updates about the real estate market of Calgary and surrounding towns such as Okotoks, Cochrane and Airdrie. The real estate board also publishes the statistics for every single community in Calgary.

Any seller can receive a list of homes for sale and see what homes have sold for. This is great a great means for a seller to stay up to date and to follow the market close to home for some time. The more knowledge, the better decisions one can make. Feel free to request a market report to stay up to date on any activity in your community.

The list price is your best and most effective marketing tool when selling your home

Why overpricing can cost you more

In conclusion, the list price is your best and most effective marketing tool when selling your home. Setting an asking price for a home is a strategic decision, not just guess work. Many factors come into play when determining a fair market value.

Statistics show that a home sells for more in the first few weeks of going to market. After that, chances increase of the home getting market stale, and any price decrease may come too late.

If a home is valued at between $490,000 and $510,000, aim to stick within this range. Statistically, pricing this home at $499,000, it may sell for $495,000 within a few weeks. However, if listing the home at $519,000, it will likely take longer to sell, and statistically the home will have a higher chance of ending up selling at $490,000 or less.

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