How should we price our house?

weedyacresMay 2, 2012

We're putting our house on the market this weekend. The appraiser came back with an expected sales price of about $500K. Lots of caveats in his assessment: our house is 4400 sf on 3.5 acres and a lake, no direct comps in the neighborhood (2 subdivisions) with all 3 of those characteristics, so he used 2 comps with acreage/lakes in similar neighborhoods in a different zip code to the north, more remote from city services, and one in the neighborhood on a small suburban plot. All 3 are 10-12 years old, so are presumably in early stages of datedness, ours is 18 years old with 0-5 year old finishes.

So we need some help with the psychology of pricing strategy. We will price it somewhere between $500-550K. I'm expecting that some of you will jump in with the oft-given, automatic advice of "price it 10% below the comps so it'll sell quickly" but I'd ask that you consider all the rest of the info on the market, potential buyers, and competitive listings before responding.

Buyers: This price is the top 10% of the market around here, so likely buyers are doctors and executives, highly likely relocating here.

Market: Stable, with supply and demand pretty evenly matched, according to the appraiser. Things have begun to move, based on anecdotes of a half dozen friends and acquaintances that have listed/sold homes in the past year.

Only 5 competitive listings in our zip code between $500-550K (there used to be a few more; I need to check and see if any have sold or just pulled off the market).

A. $548K: 4200 sf, 2006 build, comparable finishes, small lot

B. $539K: 4000 sf + basement, 1986 build, a few minor updates (not kitchen or bath), 2.7 acres

C. $525K: 4400 sf, 2007 build, comparable finishes, small lot, our neighborhood

D. $524K: 4000 sf, 2006 build, comparable finishes, 1 acre

E. $524K: 3500 sf + basement, 1997 build, dated, small lot, older neighborhood

So there's nothing else of our size AND finishes AND land. If you put yourself in the mindset of the buyer who says I want to live in zip code X in this price range, you'd look at the 5 comps above and ours. At what price would you say "I like that house (ours) but the price compared to the others steers me toward offering on my second choice instead." What's the price elasticity on the upper 10% of the market? Does an extra 3% in asking price really deter offers?

While we'd certainly love a quick sale, we're not desperate by any means. But we do want to avoid the trickle-down price drops that houses sometimes do. But it seems like $10K price drops are meaningless in this price range.

There are a couple houses I know of that sold for $550K last year (but > 6 months ago, so not used in the appraisal). Comparable finishes and size, not the acreage. So that price is not out of the question.

All right, so fire away. My armor is on.

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Are homes in your price range selling? How many homes in your range have sold in the last few months. In my area sales are picking up in the lower price ranges, but there is a glut of higher priced homes on the market. You may be able to get this information from your county assessor's office.

    Bookmark   May 2, 2012 at 8:30PM
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Heck, it sounds like you have a more desirable property. List it at $550,000.

My kids live in large metropolitan areas, and the home prices there are going up. It all depends on your area, of course.

First of all, figure out the price of the home and the lot by doing the square foot price for each home and lot. That should be an eye opener. Then add for the location.

    Bookmark   May 2, 2012 at 9:05PM
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I'd suspect that people looking in that price range are pretty flexible when it comes to price -- so looking at a wider range than $500-550. I'd look down to $425 and up to $700 or so and see what's out there.

You also mention the zip code -- But the zip code may or may not be relevant. What boundaries have relevance for your area? Is it townships, school districts, specific schools? Access to certain highways or roads?

That said, it does sound like your home is nicer than the other comps. Doesn't sound like $550 will scare them away, though your initial responses should give you a better idea of whether or not the market agrees.

    Bookmark   May 2, 2012 at 10:32PM
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Back when I was selling a year ago I was in a similar price range (more $550 to $600k) which in this area is top 5%. I did a similar analysis. We started out listed at close to $600k. When we sold we were listed at close to $500k. And, no, we were not in a "bubble" type area and the market wasn't really that awful.

On paper we compared favorably to other houses that were listed. Ultimately what I found out was that all those houses listed in the $550k range (or within $50k of it) weren't actually selling. Some of them had literally been listed off and on for years.

One thing that is helpful is to get a full price history report on each of the comps. See what they have been listed for over the past several years. I found that several houses had been on and off the market hardly moving in price. Looking at the current listing my house did favorably compare, but the point was that I was comparing my house to houses that weren't selling.

So, I think it is important to look at what has sold and look at the price history on those houses. I found that houses that sold basically fell within 2 categories. Houses that sold for prices that seemed reasonable and were close to what we were listing for. However, on looking at the sales, many of those houses had taken 2 or 3 years to sell and had often had price reductions up to 20%. A few of them did sell near the listing price but often after literally years on the market.

Then there were houses that sold for shockingly low prices. These also fell into 2 groups. Those that slowly inched down over a period of years and those that were listed at a low price from the beginning and sold immediately.

Based on all that we took our house off the market (after having it listed at the price suggested by the agent) and then listed it much lower. We then had a contract within a few days.

    Bookmark   May 2, 2012 at 11:05PM
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Sophie Wheeler

It's better to be the big fish in the small pond that the bigger fish in the bigger stagnant pond. Look at the next bracket down, sub 500K, and see what's listed there and compare it to yours. I'd bet that there's a lot more activity level at that price point than the level that you think you should list the home at. Would you rather be listed for a year at 550 and have all of those carrying costs and still come down to 500 or sell it after two weeks time at 500?

    Bookmark   May 3, 2012 at 12:16AM
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The main question here is, "Why did the appraiser value it at $500,000?
You listed the homes that are currently on the market, but left out the more important recently sold homes that were used for the appraisal. And, you say those homes are in another zip code... if they are not w/in 3 miles of your home they are not valid comps. The lender will reject them.
And be careful about only applying a sq. ftg. relationship to find a value. Sq. ftg. and value are not a linear relationship. The largest home in a neighborhood will almost always have a lower price per sq. ft. than the smaller homes.
Can you give us some comps from YOUR neighborhood that have SOLD w/in the last 6 months? This would tell us a lot more than the asking prices of the homes you listed.

    Bookmark   May 3, 2012 at 7:00AM
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Your house looks great but be careful not to get caught up in how much "better" your house is than the other comps and listings. What's important and/or attractive to you may not matter to a buyer and they won't be interested in paying extra for "xyz".

kats_meow has some great advice. She also had a great house that on paper should have been worth more than other houses in her area. Unfortunately the real estate market doesn't work that way. Use days on market and selling price of comps, not listings, to decide on a price.

    Bookmark   May 3, 2012 at 7:11AM
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I'm trying hard to not fall into the "our house is better" trap, and just stick with buckets for finishes (very updated, medium updated, dated), and land (small lot, acreage). People aren't going to pay $20K more for our house just because we have heated tile floors and a 200 sf master closet.

I'm not feeling great about the comps he used that were far away. I think he was trying hard to match size and land, when it seems to me that the more accurate approach would be to match size and neighborhood and adjust for land. "Extra" acreage is valued by appraisers at $10K/acre, so that should be a $30K boost. I will call the appraiser and ask him for a data dump of everything in our 2 neighborhoods that sold for >$400K in the past year.

The zip code is pretty relevant. It covers the whole city of 31K population, all attend the same high school, and we're in the slightly more desirable elementary & middle schools. But some home shoppers will also look in the larger adjacent city to the west, and there are some higher-end subdivisions there as well. The far-away comps are in a smaller town to the north, with a less desirable high school.

Good point that people that can buy in our price range might buy lower. When we moved here, we started looking up to $250K, then raised it to $300K and then $350K when we didn't find what we wanted. We could similarly have buyers who start at $400K, eventually bump up to $500K, and the realtor shows them everything up to $520K in their usual fashion, and ours, which is priced at $550K doesn't get shown.

Here's the info on the comps the appraiser used:
A. $550K, 5 acres, 5500 sf, 1.5 miles away, adjusted to $497K
B. $410K, small lot, 4100 sf, our neighborhood, adjusted to $459K
C. $550K, 4.75 acres, 3800 sf + basement, 1.5 miles away, adjusted to $496K
Cost approach came up with $503K.

While I know that sold comps are what matter, how you're priced compared to what's on the market does impact buyer behavior as well, so I'm looking for any insights you can offer on that front.

    Bookmark   May 3, 2012 at 8:16AM
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tishtoshnm Zone 6/NM

I think that acreage can be a challenging item for putting a price tag on. In my area, people want acreage, but the difference in a house on 2 acres vs 5 acres really does not equate to $30k. The house on a larger lot may be more desirable so if the prices are comparable, the house on the larger acreage would probably be more desirable but in my area, it may not be worth enough to a person to pay extra for. Good luck.

    Bookmark   May 3, 2012 at 11:11AM
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Yep... once you improve a vacant lot by building a home upon it, the value of the land drops significantly.
The two homes with acerage sold for $497,000 and the one in your neighborhood sold for $460,000. (After adjustments)
I would be surprised if you get anything too far North of $500,000. With the info given, I think you are looking at a sales price of about $500000. List it at about 6% more than that.
And Weedy, you are absolutely correct when you say that buyers and appraisers alike look at "Buckets" of upgrades, amenities, and other related features. And the entire "bucket" is rarely ever worth the sum of its contents. Good for you to come to this realization. It is a big step for a seller to grasp.

    Bookmark   May 3, 2012 at 6:30PM
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I talked with the appraiser and he sent me a link to a sales database I dove into on my own. In the immediate neighborhood, 5 houses have sold since 1/1/11 over $400K. 37 houses total have sold, range of $250-570K.

The 5 comps I adjusted for:
SF: $35/sf
Basement: $20/SF
Lot: $30K for me (they're all small, non-acreage)
Depreciation: our house has Sales prices/adjusted values:
$555K...$567K...built 2005
$485K...$505K...built 2000..on big lake
$410K...$456K...built 2001
$440K...$482K...built 2000
$570K...$592K...built 2007..on small lake (pond)
Average: $520K

The first one on the list is actually the best comp: same size, no basement, same finishes, higher-end street in the subdivision. #3 is the only other one with no basement, 10% less sf, but small lot with no water view, and medium dated. Appraiser used #3. I asked him about the others and he's going to revisit.

I also took a step back and looked at the whole zip code, to see what has sold in the 400+ range since 1/1/11.
400-500: 15 sold in 2011, 5 sold in 2012, 12 now listed
500-600: 12 sold in 2011, 2 sold in 2012, 8 now listed
600+: 1 sold in 2011, 1 sold in 2012, 15 now listed

I'm leaning towards listing at $530-ish, which happens to match NC's 500K + 6%.


    Bookmark   May 3, 2012 at 8:49PM
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If you are going to list on MLS sometimes they have search ranges. If yours breaks at $525,000 then you might list at 524,900 (in some areas a search that goes up to 525 -- such as 500-525 -- won't include houses listed exactly at 525).

    Bookmark   May 3, 2012 at 10:45PM
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Are the other cmps directly on the lake? Throw out any comps that are not direct waterfront.

the small small? 1 acre, 1/3 acre?

    Bookmark   May 4, 2012 at 8:27AM
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