One way of managing the stress of selling a property is to know what to expect from the pricing conversation you will be having with your REALTOR®. You will want to land on a price that you are comfortable with and one that aligns closely with market value.
Let’s review three important tools that will factor into the pricing conversation: comparative market analysis, market conditions, and overall pricing strategy.
Comparative Market Analysis
When you meet with your REALTOR® to discuss price, you will likely spend some time reviewing prices of comparable homes in the area. This exploration is known as a Comparative Market Analysis, or CMA.
This is an important discussion because understanding how much houses are selling for in your area will provide a benchmark to guide you when pricing your own home.
There are three important components to understand about the CMA.
The first is timeline. The comparison houses you will review will be for homes that have sold in the area in the past 12 months. If there are few comparison homes that have sold recently, your salesperson may go farther back in time in order to give you a broader perspective.
Properties that have sold most recently and that are the most similar to yours will provide the best value comparison to your home. Pay closest attention to these.
Markets can shift quickly, and homes that sold 6 or 8 months ago may not be an accurate reflection of your home’s value today.
Second, location. Comparison properties should be geographically close to your house, ideally on the same street but certainly in the same neighbourhood. The closer the homes are to yours, the better comparison they will offer.
The third element of the CMA is the fine tuning.
There will be important differences to account for between your house and similar buildings in the area. For example, you might have a double car garage while a comparison property has a single. Your home may have a finished basement while another does not.
Your REALTOR® will make price adjustments to compensate for these differences and talk you through the reasoning for each.
An important nuance of the pricing conversation surrounds current market conditions. Knowing whether you are in a buyer’s or seller’s market will contribute to your pricing strategy in important ways.
For example, many areas around the GTA are currently experiencing a seller’s market. Simply put, this means there are more buyers than there are properties available to purchase. This market condition drives up both demand and price and creates an atmosphere of competition among home buyers.
Sellers will always want to closely align listing price with the market value of the home regardless of market conditions. Market value is what the comparison properties will help you determine and reflects a reasonable price a buyer would pay for your home.
Remember that house hunters are visiting other properties in addition to yours. Pricing your home accurately in a seller’s market can mean buyers perceive your property as priced accurately which then creates a sense of urgency in an environment where few homes are available.
The result is that purchasers may end up competing for your home.
Pricing your home too high may be problematic for a number of reasons.
Sellers often think that even if their home is priced too high, buyers will still place offers in the hopes of negotiating the price down.
However, what’s more likely to happen is that you will exclude potential buyers from noticing your home in the first place. This can happen because homebuyers tend to search in price ranges; if your property is outside the buyer’s price range, it simply will not appear in the search results.
Sellers can also be misled if they are seeing a lot of showing activity despite being priced higher than market. However, what is usually happening in this scenario is that buyers are using the home as a comparison property rather than visiting with a view to buy.
Another concern sellers have is pricing lower than market. You may worry that if the price is too low, your home will sell below what it is worth.
What we see in this case is that the market usually course corrects for a lower-than-market listing price.
After seeing a few houses, serious house hunters will have a sense of what they can obtain within a given price range. If your home price falls below this price threshold but the property is clearly worth more, the sense of urgency will be intense. This can result in multiple offers, driving up the price for the home.
It’s important to remember that there are many nuances to consider as you evaluate a possible listing price for your home. Your REALTOR® will be a key resource to utilize as you find your way through the thought process.
REALTORS® provide the relevant research, will help talk you through your listing price, and make an informed recommendation based on their extensive training, market knowledge, and years of experience.
In the end, however, the pricing decision is always yours to make.
Subscribe to Monthly Newsletter
Explore More Articles
Daily Listings to Your Inbox
What's Your Home Worth?