Pricing a Home Accurately: Mistakes to Avoid

Reprinted from RIS Media’s Housecall

By Bill Gassett

Do real estate agents make mistakes when pricing a home? Of course. This is why it’s so important to go with an experienced agent and one you can trust at the same time.

Related: Growing and Slowing: What to Expect for Home Prices, and Where

Sometimes an agent will make a pricing mistake for no fault of their own. You’d be surprised by how many sellers try hard not to disclose all of the information about a property. An exceptional listing agent needs to be a detective, as well as a salesperson.

Finding out what’s wrong with the property is just as important as learning about its top selling points. Here are the most common mistakes to avoid if you want to price a home accurately:

Should You Price a Property Using Price-per-Square Foot?

Using price-per-square foot to value a home is one of the oldest means of pricing. It’s also one of the least accurate for many reasons. A significant amount of uneducated agents will use this method of valuation.

It sounds great, but it may not accurately reflect the true value of the property. For instance, another home in the same neighborhood could be in worse condition. It could require a lot of work and have other problems which need to be addressed. In that case, the price-per-square foot valuation is not a true reflection of the subject property’s value. It’s often worth paying a bit more for a property that’s in better condition.

Another example is trying to compare a home in a far superior location. People pay a premium when they’re located in the best area in town.

Does the Neighborhood Matter?

Most buyers are happy paying a bit more for a property in the exact part of town they’d like to move to. Sure, take a look at what properties are selling for in other neighborhoods, but if the property comes up where they want, they’ll usually pay for it. So you could have two identically-sized homes and one may be worth more than the other if located in a premium neighborhood.

School districts are another reason why you can’t just use price-per-square foot. The schools in a particular part of town may not be as good, or it could be further from work. Buyers are willing to pay more money for the same house in the top school districts.

The Seller Determining the Price

Should a real estate agent let a homeowner price the property? This is where the worst pricing mistakes happen. Most homeowners who try to sell on their own, or talk the listing agent into selling for a certain price, can wait a long time for a sale.

These properties are often overvalued and you should be aware of this problem. If you think that the price seems excessive, ask the agent who set the price of the property. If the owner is selling their home without a real estate agent, there’s a decent chance they set the price. The vast majority of the time, For Sale By Owner properties have an unrealistic asking price. This is one of the reasons why so many of them end up listing with an agent.

The Agent Didn’t Want to Lose a Listing Opportunity

Real estate is one of the most competitive industries around. Agents often compete with other agents to land business. Human emotions can come into play when a seller has to pick who they want representing them.

Unfortunately, instead of picking the best agent based on skills or merit, other factors are considered. If one agent comes in with a higher price, they may be picked for that reason alone. And lesser-skilled agents use this to their advantage—they’ll intentionally mislead the seller on price to get a listing.

Using the Tax Assessment to Set a Price

This isn’t a good idea. Most agents are aware of the value of the tax assessment, but seldom base their value of the property on it. There are some agents who don’t know that there’s no correlation between assessed value and fair market value—many things may have changed since the property was last assessed by the tax collector.

Assessed values can be much higher or much lower than the actual market value. Never make the mistake of using an assessed value to put a price tag on a home.

Basing the Price on an Online Estimate

Don’t try to guesstimate a property value. There are many online valuation sites that publish valuations. Take these estimates with a grain of salt. More often than not, these are way off from the true market value. Always make sure that a property value is backed up by facts. An outstanding real estate agent should be able to tell you what a home is worth and back it up with facts as to why that is the case.

Don’t be afraid to ask. Many buyers are still worried about asking why a home is worth a certain price. A professional buyer’s agent will tell you why they think the home you are considering buying is worth X amount compared to others.

Key Factors to Check Out

In order to ensure no pricing mistakes have been made, here are a few things you should check out:

  • Is the plumbing up to date?
  • Does the homeowner have all of the necessary building permits for any remodeling done?
  • Are bathrooms and the kitchen up to date?
  • Are all home improvements and alterations legal?
  • How desirable is the lot?
  • How much traffic goes by the house?
  • What is the rating on the local school system?

It’s easy to forget that it is your money. Many of us still “fall in love” with a property and find we “just have to have it.” Some say that you buy dreams when you buy a property. That is very true. When you go on a home visit, take off your rose-colored glasses and make sure you are comparing apples to apples.

The market value of a home is always determined by the buyer. If you don’t have a buyer, then you don’t know what your property is worth. Agents and sellers can surmise all day about what they expect a home to sell for—sometimes it happens as planned and other times it doesn’t.

Of course, any real estate professional does their best to accurately price a property. Some are better at it than others. Given it’s such an important variable in selling a home, make sure you do your due diligence.

Homes that are priced correctly out of the gate sell for more than those that get price reductions. Always remember that when you are trying to stretch beyond what the data tells you. By following sound advice, you’ll avoid all the common pricing mistakes that get sellers into hot water.

About marilynsellshollisterrealestate

I am a native Californian born in Los Angeles and have resided in San Benito County since January 30, 1959. I attended the University of Southern California. I am a licensed Real Estate Broker, license #00409787, active for almost 45 years. I started my career in 1972 and still am totally committed to the highest level of service to my clients. I am currently associated with Intero Real Estate Services. I am Past President of the San Benito Association of Realtors, serving in the role on numerous occasions. I was a Director of the California Association of Realtors for over 18 years, having served on numerous committees. I also served 2 terms representing the California Association of Realtors at the National level, NAR. I am a certified SRES (Senior Real Estate specialist), since 2005. My community involvement has included membership in the Hollister Rotary Club, serving as their first woman President in 2002. In the late 1960's, I became a member of the El Torillo Chapter of Children's Home Society, and served as President, and was also President of the Tri-County Council of CHS, which is today Kinship Center, and I am currently a Senior Active. I am a member of the San Benito Chamber of Commerce. From 2002-2008, I served on the Board of the Hollister Downtown Association and was their President from 2006-2007, and still serve on sub-committees of this organization. And, I am currently serving my 3rd term on the Community Foundation. My record of performance and my reputation have made me who I am in the industry. I am a household name in San Benito County, when you think of Real Estate. My name is recognized not only in Hollister, but in our neighboring counties, Monterey, Santa Cruz and Santa Clara counties. I have been involved in land development, marketed several subdivisions, sold ranches, commercial leasing, bank-owned properties, short sales and own a Property Management Company, Hollister Rental Properties, for more than 35 years. I am proud of my sales record and for the majority of my career I have been in the top 1% of major Real Estate Companies including Van Vleck Realtors, Cornish and Carey, Contempo, Seville-Contempo, Century 21, Coldwell Banker and finally Intero Real Estate services for the last 15 years. Using my skills in negotiating, mediation and transaction closure, during 2010 and 2011, I was involved with the City of Hollister's First Time Home Buyer Down Payment Assistance Program. The program was the City's Redevelopment Agency, under Bill Avera, with the assistance of CJ Valenzuela who was working with the County of San Benito. CHISPA, a non-profit, was responsible for restoring homes to equal to new condition that the City had taken back in foreclosure, or that they had acquired. When the homes were restored, we put them on the Multiple Listing Service and we went out and promoted the City's Down Payment Assistance Program. Buyers were screened and qualified by our preferred lenders. I facilitated workshops for First Time Buyers explaining the programs. I negotiated the contracts for the City of Hollister and with the Buyers. With this program, I closed 2 homes in 2010, and 4 homes in 2011. On a personal note, I am married to Richard Ferreira, a retired General Contractor/Developer. We have a combined family of six daughters, six grandsons and 3 granddaughters. We share commons interests in travel, movies, entertaining, and Richard has picked up my love of cooking. Our spare time is spent with family and enjoying our grandchildren.
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