There are lots of ways to price a house when you offer it for sale.
One way, popular with some sellers, is take the price they paid, add the price of the improvements and then adding the agent commissions to determine an offering price. Of course, the problem with that approach is that the market doesn’t really care what the sellers paid for the house, or what they put into it.
A house is only worth what a buyer is willing to pay for it. Based upon the other sales in a neighborhood, a buyer is only going to pay what other homes are bringing. Buyers are still feeling the effects of the recent downturn in the market, and even though prices are going up again, they are still skittish about getting burned again. They know that prices are going up and they are going to have to pay more than they would have six months ago, but it is awareness that comes slowly and sometimes painfully.
Even if the most recent comparable sales reflect a higher price, the the property still has to appraise. Most buyers will write an appraisal contingency into their offer. This protects them from over-paying for a house. If the house doesn’t appraise, then the buyers will come back and attempt to re-negotiate the purchase price to the appraised value. Appraisers generally are required to use properties that have already closed rather than listings currently on the market or under contract. That means that the comparables used by appraisers generally lag the market – particularly in one that is heating up.
If a property does not appraise for the contract price, the buyer may ask the seller to re-negotiate the sales price because a buyer will not be able to get a loan for more than the appraised value. The lender will require that the buyer make up the difference between the appraised value and the value of the loan. If a buyer is making a large down payment, then this may not be an issue. However, most buyers don’t want to feel that they overpaid for a new house even if they have the ability to make up the difference. The seller always can refuse to re-negotiate, but the buyer may walk away from the contract.
When looking to sell your home, it’s important to recognize that agents don’t determine the list price by what you want to get. Price is determined by what recent buyers paid for homes in the same neighborhood with similar size and amenities.
Unfortunately, buyers don’t want to pay extra for the new roof or the new Pella doors. The granite counters and the tile backsplash are the new norm, so you don’t get more money for that – but you will lose money if you don’t have those amenities. A home in top condition is going to sell more quickly than one that is tired or out of date. Homes on busy streets or backing to the Beltway or with unattractive views take longer to sell, even in this market.
My advice to my clients is to look carefully at the competition and to price your home squarely in the middle – or slightly lower. You want your home to be better than the competition so that the other homes sell yours – not the other way around. Your home is being compared to all the other homes on the market at the same time. It has to be better than the rest.