How to Pick the Right Selling Price for Your Home

A young couple standing in front of the house they sold
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Not every seller realizes how to price a home correctly. Picking the right sales price requires expertise, and it's also an art in many ways. That's why relying on the advice of a real estate agent who keeps a finger on the pulse of the market can be invaluable.

The Difference Between List Price and Sale Price

The first thing to understand is that a home's list price, and its eventual sale price, are often two different prices.

We'll call them Price A and Price B. The first price to pick is Price B, your targeted sale price. But that will probably not be identical to Price A, your list price. If you choose Price B carefully, you can use market conditions to figure out how to choose Price A. 

Comparable Sales May Affect Your Home's Sale Price 

People seem to remember the price of a home when a home comes on the market, but they might not know the price of the home when it sells. You can go to websites such as Zillow.com to find out the sold prices or ask an agent to provide comparable sale prices to you. But only prices within the past 3 months should be used, if at all possible. Don't use last year's prices.

Just because a home down the street sold for $250,000 doesn't mean yours will, too, unless your home is fairly similar to that home.

Don't make assumptions about value. Appraisers might allocate only an additional $10,000 for a lot that is 30% bigger than yours.

Why Home Improvements May Not Pay Before You Sell

When you buy a brand new car and drive it off the dealer's lot, some of its value has declined before you've even reached the first stoplight. That's because cars depreciate in value.

Unless you've added a second floor or completed a substantial project like a new bathroom, most home improvements also depreciate in value. Some trendy types of improvements go out-of-date in just a few years.

A seller once told me his home was worth more money because he had replaced all of the exterior sidings with redwood. When did he do that? Oh, 22 years ago. Very few home improvements return 100% of the investment, and that percentage of return declines over time.

Home improvements or upgrades in a brand new home are also subject to personal taste. Those granite-tiled counters might be worth nothing to the next buyer who will rip them out and install quartz slab instead. Remember the hunter green phase from the early 1990s or the orange shag carpeting from the 1970s?

Why It's a Good Idea to Check out Competing Prices

By all means, check out the competition, because those are the homes for sale that buyers will be comparing to your home. Compare the per-square-foot prices and not just the overall price. If your home has 500 square feet less than the home that sold across the street, your home is probably worth considerably less money. 

Consider the Pending Home Sale Prices

The homes that have sold but not yet closed escrow are generally either active contingent short sales or a pending sale. You may not know the price of those homes because the price is generally not disclosed until the transaction has closed, but you do know the list price. You also know that the list price was adequate to attract an offer. If the home sold very quickly with few days on the market, it probably sold at list price. 

Why Choosing a List Price Depends on the Market

You may find this difficult to believe, but you really can't price a home too low. You can price it too high, and nobody will look at it. But if you price it too low, it doesn't mean that it will sell for that price, and you'll take a bath. If a price is very attractive, it might pull in a lot of buyers. A seller might receive multiple offers; perhaps each offers higher than the last offer.

It's buyers who set market value. And nothing drives up home prices faster than a home every buyer wants to own.

In seller's markets, you can ask more than market value for your home, and you might get a price higher than its market value. That's because there are very few homes available and a lot of buyers wanting them.

In buyer's markets, you might need to price your home a bit lower than market value to attract a buyer. That's because in a buyer's market, buyers have a lot of homes to choose from and there are very buyers. Your home might need to be in tip-top shape to sell as well. If there is something wrong with it, every other home will most likely sell before yours unless your price is extremely competitive.

Why Location Matters When Selling Your Home

Remember the adage location, location, location. A home located on a busy street might be worth tens of thousands or even hundreds of thousands less than a home located on a quiet cul-de-sac. If your home backs up to a landfill or a commercial building, you can deduct even more from the comparable sales.

At the time of writing, Elizabeth Weintraub, CalBRE #00697006, is a Broker-Associate at Lyon Real Estate in Sacramento, California.

Article Sources

  1. Remodeling. "2020 Cost Vs. Value Report." Accessed March 19, 2020.

  2. Federal Housing Finance Agency. "U.S. House Price Index Report - 2019Q4/December." Download. Accessed March 19, 2020.