Updated: 8/26/2011 1:10 PM ET|
The psychology of pricing your home
So you've decided to put your house on the market? Price it so that more buyers see it -- and notice it. Here's are 10 tips for getting the sale you want.
You're selling your home. Here's the big decision: Should you set the price high, expecting buyers will bargain you down eventually? Or should you start low to attract a lot of attention and get the inevitable discounting over with upfront?
You might be surprised how important this decision is.
Experts agree that starting with the price high on the idea that you can always drop it later is a costly mistake. Pricing doesn't just determine how much money you stand to make -- it also dictates whether buyers even give your home a serious look.
With so many competing properties for sale, yours has to pop out immediately as a good value or buyers will move on, unlikely to return. You get one first shot at your home's debut, and it's easy to blow it.
"The amount of traffic that a listing gets in its first week is five to seven times what it gets in its ensuing weeks," says Glenn Kelman, the CEO of Redfin, an online brokerage and listings site. "Let's say you lower the price (later). No one will notice. You really are broadcasting that discount to a much smaller audience of buyers and will have the perception it is damaged goods."
It's worth more because it's mine
Your job as a seller seems simple: Price it right to make the sale. You analyze the competition thoroughly and coldbloodedly. You know the prices of the properties that have recently sold in your neighborhood and their similarities to and differences from your home. You know the current competition and understand precisely what homes a little better and homes a little worse than yours are selling for.
That shouldn't be too difficult -- for Mr. Spock. But for us humans, emotions, history, attachment and expectations get in the way.
"The buyer is looking at 'What are comparable houses selling for?' and the seller is thinking, 'What did I pay for this six years ago?'" says John Gourville, a marketing professor and expert in buyer behavior at Harvard Business School.
Home sales and purchases are loaded with illogic and irrationality. Compounding the problem is our tendency to cling to things. Behavioral scientists try understanding why. Economist Richard Thaler of the University of Chicago's Booth School of Business describes this "endowment effect," the tendency for things, even little things, to become worth more in our eyes once we own them. (This cartoon, at Nudge, a blog Thaler runs, conveys the idea succinctly.)
Researchers find that the pain of a loss is two to three times greater than the joy of an equivalent gain, Gourville says. In other words, it's hard to accept receiving less than you paid for something.
But in this difficult market, realistic goals may be making a quick sale, getting the best return possible and preventing buyers from niggling over price. In areas clogged with short sales and foreclosures, a realistic goal may be making any sale at all.
Here's an arsenal of expert pricing tips, tricks and strategies to help you gain the upper hand:
Making the debut count
No. 1: Don't get penalized for starting too high. Identify your home's true value, and set the price slightly under that. At worst, you'll lose about $10,000, but you might make a quick sale. If you're further under market than that, buyers are likely to bid the price back up, Kelman says.
An error on the high side, however, can cost you more than just time. Once you drop your price, buyers smell blood. "They say, 'He's knocked $30K off the price; he'll do it again.' It's death by a thousand cuts," Kelman says.
Don't think no one will realize you've dropped the price. The best listing sites show how many times a price has been reduced and by how much, as well as how long a home has been listed.
No. 2: Test your price against reality. Try this: Pretend you're the buyer. Search online in your price range in neighborhoods with similar quality schools about the same distance from downtown or the nearest major work center. If your place doesn't pop out as an obvious value next to other properties people can buy for the same money, your price is too high.
"Most people really don't want to price it as well as they have to in this market," says Ardell DellaLoggia, an associate broker at Sound Realty in Seattle and a popular blogger.
Altos Research, a Mountain View, Calif., company that analyzes data for the real-estate industry, routinely compares initial listing prices around the country with final sales prices. Sellers generally start out with prices a bit too high, forcing them to later offer discounts to get a deal done, says Scott Sambucci, Altos' vice president of sales and analytics. Nationally, he says, discounts are averaging 8% to 9% off a property's last listing price.
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