Pricing a Home: The Ways Sellers Get it Wrong

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How Do Sellers Get Pricing a Home Wrong?

Pricing a home is one of the most challenging things a realtor must do – part art, part science.

It requires you to consider many variables to determine a competitive price, far more than most people realize.

So it is no surprise that the everyday home seller would struggle with this task.

What can’t be discounted is how important pricing a home properly from day one is to the success of a stress-free real estate transaction.

Unfortunately, there are many ways sellers get their price wrong when not consulting with a pro! What this boils down to is education.

Real Estate is one of the few industries where laymen think they know more than we do.

Unreliable Methods for Pricing a Home

Unfortunately, the average person is prone to making errors when trying to price their own home – often because outside factors influence the decision when they shouldn’t.

Few things will stop a home sale quicker than the wrong asking price.

Zillow is Not Accurate For Pricing a Home

Here are a few things that should not be the end-all-be-all source when pricing a home and why. Let’s start by mentioning every Realtor’s favorite. The famed Zillow home value or Zillow estimates.

Zillow is a valuable tool for most things in real estate, but not for giving an accurate home value!

Real Estate agents are questioned every week with inquiries like is a Zestimate accurate? A “Zestimate,” as Zillow calls it, is an online valuation tool for valuing a property.

Zillow has a vast database on the selling price of homes in different areas, and it does a fantastic job of compiling that information and extracting estimates. However, those estimates are rarely accurate.

They work for ballpark ideas, not for exact figures. Zillow uses the public records of all homes sold in your area. This is great when you want a general idea of what homes are worth in your geographical turf.

You can search for homes of similar sizes with similar features.

But those records do not tell the whole story. They cannot account for improvements recently made or problems that go unreported.

Zillow Doesn’t Know How You’ve Improved Your Home

The algorithms used by Zillow cannot possibly account for the new bathroom you just put in, the glamorous kitchen remodels, or, on the downside, the broken sprinkler system in your backyard.

A well-connected Realtor will likely have the inside scoop on many of these homes. They can use this information to set an accurate price, far more so than Zillow can.

It is easy to make a big pricing mistake when going on “ballparks.”

Keep in mind I have seen the value presented on Zillow off by over $150,000 from the actual home value. Not small peanuts when it comes to pricing a home. This is probably the #1 way sellers get their price wrong.

A Refinancing Appraisal is Not Accurate For Pricing a Home

The refinancing appraisal is a method of valuation that a lot of sellers like to hang their hat on primarily when it benefits them to do so.

The only problem is that can be an unreliable means of what the market value is today.

Appraisals can be tricky, especially when they are done for refinancing. An individual makes each appraisal, and each individual can come up with a different value.

The dirty little secret here is that lenders want the appraisal to work – within reason, of course.

Lenders make money by writing loans. Each time you refinance your property, the lender makes money. There is a little more leeway regarding valuations on a refinance.

Most of the time, your appraisal will not be conservative unless the real estate market is in steady decline.

While a high appraisal can be great for getting a refinancing loan, if the appraisal is inaccurate, it can cause you to price your home too high. Not a good thing to do.

The appraisal could have been too low as well.

Timing For Appraisals Matter

There is also timing to consider. When did you get your refinancing appraisal?

If it wasn’t within the last few months, it might not be accurate for the current market. Some sellers who have refinanced a home close to a year ago incorrectly assume the market has not changed in that time frame.

Rarely is that the case. The refinance appraisal is one that I find the most humor with because some sellers treat the appraisal like they have just spoken to a five-star general. On the other hand, getting home values from a Realtor is like speaking to a private in some instances.

Sometimes this thinking is justified, and other times it is entirely off base. Real Estate Appraisers are human, just like the rest of us. They are not gospel regarding property values.

From experience, I can confidently tell that refinancing appraisals are rarely conservative.

Don’t rely on this piece of data when pricing your home. More often than not, you will price your home incorrectly doing so.

The Assessed Value is a Terrible Method For Pricing a Home

The municipality you live in will have an assessed value on your home. This value is how they build their tax structure and an important facet of living in a community.

Assessed values, however, are nothing more than a measuring stick for a city or town to collect an appropriate amount of taxes from those that reside in the community.

The official nature of this may encourage you to rely on the assessed value of your home for pricing purposes, which could be a big mistake. Real Estate assessed value almost always does not correlate with current market value.

One of the biggest problems with the assessed value is that it is often not current. Municipalities will usually assess value once every 1-3 years. The market can change substantially in six months, much less a year.

Never consider your tax assessment and think it will work for pricing a home.

Listening to an Unskilled Realtor to Price a Home

It is frustrating that not all Realtors are equal in their skill level.

It may be due to inexperience, a lack of attention to detail, or a range of other factors, but some Realtors are just not that good at what they do.

This lack of ability is unacceptable when you are trying to sell your most valuable asset.

As stated before, the pricing of a home is quite complicated, and it takes a considerable amount of skill to do it right the first time.

It also takes the humility of experience to know when to adjust a home price when it was set incorrectly. An unskilled Realtor may have neither of these qualities – which can leave your house on the market for far longer than it should be.

Some Realtors Intentionally Overprice Homes

The other thing to remember, as strange as it sounds, is that some Realtors will intentionally tell you your home is worth more than it is to get the listing.

Every day there are thousands of homes that have price reductions across the country. In some cases, it is an overzealous seller.

In just as many cases, agents set unrealistic asking prices. Real Estate agents who mislead sellers on market value are not all that uncommon.

The agent’s strategy is to get you to sign an exclusive right-to-sell listing contract beating out the other agents you are speaking to, and then bang you over the head for price reductions in the coming months.

Some agents don’t even care if they sell your home, as they are using it to generate buyer calls for homes they can sell elsewhere!

Choose a Realtor that has a record of recently sold homes, homes that were bought for near the price they were first set at. Having an overpriced home with a lousy Realtor is a kiss of death!

Using Price Per Square Foot For Pricing a Home

There are many rudimentary ways to price a home for sale. Using price per square foot is one of them. It can be a very inaccurate way of determining home value. Far too many factors go into pricing a home for sale.

Price per square foot only relies on the square footage of your home to calculate value. So many other things will influence the value, including your location and how the home was built.

Be sure to review the helpful resource on why the price per square foot is a terrible way to price a home. Unfortunately, many Realtors will rely on this as an accurate pricing method.

Not Speaking to Any Professionals For Pricing Your Home

Some homeowners choose to sell their home as a for sale by owner. More often than not, the reason is to save a real estate commission. I would never fault a seller for trying.

Doubtless, paying a real estate commission is not chump change. The problem here is that by not speaking with anyone, you are taking pricing a home into your own hands. As already mentioned, pricing is a skill that cannot be overlooked.

It takes some real estate agents years before they get it down pat. Knowing how to sell by owner includes speaking with a professional, whether an appraiser or a skilled Realtor.

While you may not choose to hire a real estate agent, at least speaking to one to get an accurate price is vital.

Most Realtors will do this for nothing to get your business somewhere down the road. This is something every intelligent homeowner should do. Not speaking to anyone is near the top of the list for how sellers get their price wrong.

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You Visited a Neighbor’s Open House For Pricing

There is nothing wrong with looking at neighborhood houses when they go on sale. Visiting an open house can be fun, and it can be informative. But you must understand that this is no way to price your home.

When looking at open houses, feel free to take note of similarities and differences. Research is always valuable. But ultimately, you should rely on your agent to price your home.

As much as you may see in your neighbor’s home, there are many other things that you are not seeing.

You may not notice the upgraded fixtures, the thousands of dollars they invested for a bathroom remodel, the type of premium windows and doors, or the granite counters you don’t have in your kitchen.

There are so many details that it is impossible to recognize them all without experience and training. Maybe you can get your agent to take a tour with you. However, don’t forgo the agent because your neighbor gives you a supposedly easy price reference.

Current Homes For Sale is The Least Important Variable in Pricing a Home

It could be disastrous. Even if all the features in most are identical to yours, one of the biggest mistakes in pricing is looking at what current properties for sale are listed. You never want to rely on whether or not your neighbor has priced their home correctly.

Sold properties are what dictate market value. You always want to look at what similar properties are selling for, not your neighbor’s unrealistic expectations for their own home.

The other thing to remember is that the neighbor could change their price at a moment’s notice. Pricing your home based on your neighbors is a rookie mistake.

The best thing you can do when you have a home to sell is talk to a respected Realtor. Selling a home is surprisingly tricky, especially if you want to get the most out of it. The fee you pay the agent will be more than worth the peace of mind you get.

The risks involved with overpricing a home equate to one thing – lost money! History shows us repeatedly that homes priced right from day one sell for more than those that need a price adjustment.

“I can always come down on my price later” is a typical quote that most Realtors have heard hundreds of times. The belief that some sellers have that they can always come down on price later is a poor one.

Sure, you can come down later, don’t think you will be getting top dollar. Homes that sell for the most money don’t languish on the market. Days on market are your enemy in real estate!

Hopefully, you now understand how sellers get their home price WRONG!

How to Determine Home Value?

Only a few methods can be used for pricing a home that should be reasonably accurate. They are contacting a local real estate appraiser or Realtor.

A home appraisal will provide you with comparable sales, forming the basis of an estimated current market value. The appraiser will prepare a report including all the data points used to determine your home’s value.

You may be wondering how Realtors determine how to price a home.

A real estate agent will do the same thing as an appraiser, but instead of doing an appraisal, they will provide a comparative market analysis (CMA). A CMA will have the same comparable sales info.

It is vital to remember that who is doing the appraisal or CMA is crucial. Someone who just got their appraiser’s or real estate license likely will not be as accurate as someone with years of experience.

How to Price a House For Sale

Understanding how to price a home for sale separates the winners from the losers.

Understanding the difference between the listing price and the selling price is essential. A real estate agent should have a game plan based on what is happening in the local market.

In many instances, the listing price vs. selling price should be in a tight range. For example, if the fair market value of a home is around $500,000, pricing it at $550,000 would likely be a significant mistake.

Many buyers may skip looking at it or balk at making an offer. Your list price should always be reasonably priced from the present value.

Real Estate agents refer to this as “pricing a home to sell.” It is possible a buyer could overpay, but the appraiser says, “I don’t think so,” creating an appraisal gap that needs to be dealt with.

Many myths about pricing a home for sale lead to problems with a property selling.

Final Thoughts on Pricing a Home

If you want to be successful at selling a home, there is nothing more vital than pricing correctly. Your asking price needs to be based on facts, not emotion.

Pricing a home wrong is likely when you follow any of the things I’ve discussed here.

Do you live in the Metrowest, Massachusetts area and are considering selling your home? If so, reach out. I would welcome the opportunity to help.

Comments

Sheila Hensley says
January 5, 2015 at 10:58 am
Another gem Bill. So many things to consider for a home owner. Good guidance is imperative.
Mark Ates says
January 6, 2015 at 4:53 pm
Great article! I really appreciate the comments regarding unskilled agents. With so many new agents coming into the market, I run into more and more homes priced too high. In the Houston market, a home should sale quickly. Unfortunately many new agents walk in, ask the home owner what they want for the house, throw a sign in the front yard and wait.
- Bill Gassett says
  January 6, 2015 at 6:11 pm
  Mark we see the same thing here. It is a fact of life in real estate sales. Some sellers really learn the hard way.
Dennis Harper says
July 30, 2015 at 3:29 pm
Great article! Too bad we can’t require our clients to review such great advice prior to listing their home for sale. It’s even worse when most agents won’t refuse to take a listing when they know all too well that the property is over-priced from the start.

The Ways Sellers Price a Home Wrong