, / 604 0

These Are the Most Important Factors to Help You Set an Asking Price

SHARE
These Are the Most Important Factors to Help You Set an Asking Price
12 min. read

Image: lovelyday12 / Shutterstock.com

Setting the right asking price when it comes to selling your home is never easy, and even the professionals struggle sometimes. Pricing too high can result in your home sitting on the market for months, putting potential buyers off with each passing day. On the other hand, if you go too low you could be losing out on thousands of dollars. 

It takes a thorough understanding of a number of factors and variables in order to hit the mark. Below, we’ll discuss the most important, to help you set the best asking price for your home if you’ve decided to take the FSBO approach.

Neighbourhood Comparables

The number one tool used by real estate agents and appraisers when determining the value of a home is neighbourhood comparables, or ‘comps.’ These are properties in your area whose square footage is no more than 10% greater or smaller than your home’s, that are of a similar age and condition, and that have been listed and sold within the past 3 months. By looking at how much they sold for, you can get a rough idea of what your home is worth.

Look for homes in close proximity to yours—in more densely populated urban areas this could be within a half-mile radius, while in rural areas this may extend to several miles. Be sure to pay attention to neighbourhood dividing lines and physical elements such as major roads or railways.

The idea is to be comparing your home to properties that are as similar as can be—don’t compare apples to pears! This is one of the mistakes that could cost you in the long run. Take a look at the price each comp was listed at and then at the actual figure it sold for to get an idea of the current market. If the majority sold for a higher price than listed, you may find yourself selling in a seller’s market—a large pool of buyers but only a few properties on sale.

Active Listings

Take a look at active comps and see what they’re listed at. Bear in mind that they may set whatever price they like and it’s only the sold price that appraisers will take into consideration.

Pay particular attention to any comps that are currently under agreement—homes that have accepted an offer and are awaiting closing. While the sale price won’t be published until the transaction is complete, you can make an educated guess at how much it sold for by looking at how quickly it went under contract since being on the market. If it was quick, it’s likely to have sold at, or at least close to, the asking price.

Location

The desirability of a particular location can come down to personal preference, for example, proximity to a particular workplace. When an appraiser considers location, however, they prioritize the following 3 indicators:

  • Proximity and quality of local schools
  • Employment opportunities
  • Proximity to local facilities and amenities, in particular shopping and recreational centres

In addition to this, it’s worth factoring in the proximity of less desirable features and utilities, such as railways, power lines or major roads. Two identical properties across the road from one another can fetch drastically different prices if one backs onto a beautiful park and the other onto a noisy railway line.

Use this information when comparing comparables in your neighbourhood—your home might be worth more than a nearby comp that is on a busier street. Use online mapping services and satellite images to see what’s close to each comp you study.

Square Footage

The size of your home will play a large role in determining what it’s worth, but it’s important to realize exactly what the important measurements to take into consideration are. Appraisers size a home in terms of livable space: bedrooms, bathrooms, kitchen, living room, etc. Garages, unfinished attics and basements are typically not included.

Look at homes that have sold recently in your neighbourhood to get an idea of what the price per square foot is locally. Simply take the final sale price and divide it by the square footage. For example, a 2,000-square-foot home that sold for $400,000 would have a price per square foot of $200. Get an average from as many of the most similar comps as possible and use this as a guide when pricing your home.

Age and Condition

If you have an old house that is long overdue renovations, your home will be worth less than a more modern, up-to-date home. On the other hand, if you’ve recently renovated an older home and upgraded the wiring, replaced the roof and fitted modern utilities, age isn’t such a big factor—just be sure to keep proof of the work that has been carried out.

If your house is ready to move in to, without the buyer having to worry about replacing the roof a few years down the line, it will command a higher price tag. Buyers are almost always more attracted to homes that are ready to go.

Local Market Conditions

Finally, you need to be aware of where the current market is headed. A lot can change in a short time with real estate, so it’s essential that you keep on top of things. If there are a lot of similar houses on the market and have been for some time, demand for your home might not be very high, which will force you to price more competitively. This is a buyer’s market, and not the best for selling a home in.

On the other hand, you might find that there are no other similar homes for sale, or if there are they sell quickly. This is known as a seller’s market, and it will allow you to set a slightly higher asking price.

 

Expert Insights

To get even more details on the steps home sellers can take in order to correctly and easily set an asking price for the property they intend to sell, we talked to 3 experts. Check out their answers below and make sure to share your experience with home selling in the comments section!

 

Robert Jalali

Robert Jalali
Lecturer in Finance at UC Davis Graduate School of Management and Real Estate Broker

How would you rank the following main factors when it comes to setting up an asking price for a home: similar active listings on the market, location, square footage, age and condition, and local market trends? Why?

Setting the appropriate asking price is critical in the sale of a home. If the asking price is too high, the property may sit on the market and turn into a “stale listing”. Time on Market is a key factor that informed buyers take into consideration when looking at a real estate listing. The best approach to determining the appropriate listing price is to start with recent sales of comparable properties, as close to the subject property as possible. Next, current listings need to be considered to assess the competition. By comparing recent sales prices and current listing prices, local market trends may be easier to spot. Obviously, the square footage, age, condition and location of the subject property must be taken into account when performing any type of comparable sales analysis and adjustments made accordingly.

What other important factors should home sellers take into consideration when it comes to setting the price?

Other factors that sellers should consider is the availability and cost of financing, in other words, the mortgage market. If mortgage rates have recently gone up, the same priced house will cost more to finance (all else equal) and the higher payment will surely reduce the pool of qualified buyers.

Since the financial crisis of 2008, the percentage of mortgages backed by the government has drastically increased and currently stands at approximately 70%. One of the most important characteristics of government-backed mortgages is the loan limit. Sellers should take into account the local loan limit, which varies based on geographical location. If the value of the subject property is such that a typical mortgage will exceed these government loan limits, the pool of qualified borrowers may be reduced.

What are the top three things a real estate agent can do to help ease the valuation process?

  1. Provide the seller with a CMA (comparative market analysis) which is an informal appraisal of the property and derived using similar techniques used by appraisers to determine value.
  2. Inform the seller on both the local and national market trends. This information should include material facts that may impact home prices in the near future, for example, the addition of roads or the opening of a large business that will change local employment and the associated need for housing.
  3. Make the seller aware of upcoming changes in mortgage rates that will have an effect on affordability.

In general, the more information provided to the seller, the better the initial asking price can be determined and the faster the property can be sold at fair market value. A typical tactic used by novice or unethical real estate agents is to overvalue the house to procure the listing and then recommend a price drop to sell the property. This practice is a violation of the fiduciary responsibility that real estate professionals have to their clients.


 

Robert Schindler

Robert Schindler
Professor of Marketing at Rutgers University–Camden, School of Business, and Author of Pricing Strategies: A Marketing Approach

How would you rank the following main factors when it comes to setting up an asking price for a home: similar active listings on the market, location, square footage, age and condition, and local market trends? Why?

To arrive at an asking price, here’s what I would recommend: First, use similar active listings on the market to get the price of the next closest available substitute. Then adjust that “reference value” upward or downward by taking into account the value of differences between your house and the next closest available substitute on commonly important attributes such as location, square footage, age, and condition.

What other important factors should home sellers take into consideration when it comes to setting the price?

The price set from Question 1 is the price that most people would pay. The next step is to estimate the price that only some people would pay. For example, if your house has any aspects of charm, such as built-in bookcases, skylights, or a nice view, add something extra to your asking price. If it turns out that the only customers you have are ones who are not interested in such style features, then you could, during negotiation, remove the amount that you added for those features.

What are the top three things a real estate agent can do to help ease the valuation process?

A good real estate agent will know the house features that most buyers want and the house features that only some buyers want. The agent can help the valuation process by identifying these features in your house.

Your asking price represents the value of your house’s features that most people want plus the value of your house’s features that only some people want.

Your reservation price represents the value of your house’s features that most people want.

Hopefully, your house will attract some of the customers who value those features of your house that only some people want, so you can get a price close to your asking price. Your real estate agent should be able to help you in this regard. With experience, one can judge whether a customer is simply bluffing in negotiation, or is just not one of those romantic, emotional people who care about charm.


 

Jiro Yoshida

Jiro Yoshida
Associate Professor of Business in the Smeal College of Business at Pennsylvania State University

How would you rank the following main factors when it comes to setting up an asking price for a home: similar active listings on the market, location, square footage, age and condition, and local market trends? Why?

I would agree to the order in the list: Similar active listings > location > square footage > age > condition.

Housing prices significantly change over time. Even if you correctly characterize the structure and location of a house, you cannot set the right asking price without knowing the current market condition. The same house can trade at very different prices depending on economic conditions.

Location is a major factor other than market conditions. “Location, location, location” is still a mantra when talking about real estate.

Regarding the structural characteristics, square footage and the number of bedrooms are the primary price determinant. Buyers start to search houses with these numbers before digging into styles and materials.

What other important factors should home sellers take into consideration when it comes to setting the price?

A trade-off between time on market (TOM) and the price is another crucial factor to consider. If one needs to sell a house quickly, the seller typically needs to accept a large price discount. Unlike in a stock market, finding the highest bidder requires time and effort in an illiquid, decentralized housing market.

Thus, it is crucial to communicate well with your broker whether you prioritize TOM or price. After all, your agent is not yourself. Your broker’s objective may not be aligned with yours. For example, your broker prefers a fast turn over while you seek a higher price even if a sale is delayed.

When communicating with a broker, do your own research instead of simply relying on your broker’s “expert” opinion. Unlike ten years ago, there is much information about market conditions, property prices, and neighborhood characteristics. For example, the Federal Housing Finance Agency provides city-level house price indexes.

 
As you can see, setting the right price for your home is easier said than done. It’s not impossible to do it on your own, but if you choose to ask an agent and use their insight and experience, you might speed up the entire process and avoid some costly mistakes.

Let us know if this article was helpful and, if you have any questions for us or you have some topics that you would like to know more about when it comes to selling, buying, or renting, let us know in the comments section!

Leave A Reply

Your email address will not be published.