Don’t Leave Money On The Table

Basic economics taught us that pricing is a factor of supply and demand.  If you price a product in demand just right it will sell and net you the most money, if you price it too high it will not sell costing you carrying costs and possibly market perception of “damaged goods”, if you price it too low it will sell but it could have sold for more.   

Straight forward, right, but how do you find that sweet spot of how to price a home?  Let’s look at what really drives price .

What drives price?

Mostly this is easy to see – there are four things that drive a home’s price.   Firstly it’s features of the building and lot such as bedrooms, bathrooms, square footage, age, pool, etc.  Secondly it’s the condition of the home’s features such as wear and tear, damage, style. Thirdly, it’s location such as proximity to schools, or the beach or roads to cities with well paying jobs.  

Those were the easy to identify factors, the fourth is not so easy – the demand for the first three is the ultimate driver.  Nicely appointed homes in good school districts will have higher demand from families than in areas with not so good schools and we’ll see higher prices result.   Ironically, our area, St Pete and the Pinellas beaches, has seen a lot of activity from flippers over the last few years and we’ve seen prices for distressed home rise rapidly, driven by that demand – so distressed homes have become desireable and we’ve seen prices go up.  

So how do we not price?

There are tools that will suggest comps for your home and allow you to use them to establish a price – it’s a mistake often made to take these comps on face value to derive a price.   This will give a generic ballpark number, similar to an online valuation. To establish a price that won’t leave money on the table, you have to ask “are buyers willing to pay that price for my home today?” and “would buyers be willing to pay more today?” – these need to be answered if we are not going to leaving money on the table, after all, isn’t your home unique?

Good start, now connect the dots    

Same as for selling any other product, look at pricing through the eyes of the buyer. “what can I buy today that fits my requirements and my budget”.  

The way we do pricing is by answering these 3 buyer questions:

1) What can I buy today that fits my requirements and my budget

Take 5 homes currently for sale with similar features and benefits to yours and and list them so the features and benefits can easily be compared – consider home and lot attributes including size, beds/baths, location, pool, anything that could be important to your buyer.  These are the “Can Pays”

2) What did people pay recently for homes fitting my requirement and budget

Take 5 homes recently sold and list them in the same way as for the Can Pays.  Assuming prices are rising, these will likely be slightly lower priced than the Can Pays.  We call these the “Did Pays”

3) What did people refuse to pay for similar homes

Take 5 homes that didn’t sell recently and list them in the same way as above.  The most common reason for not selling is the price is too high for the product, so these will likely be priced above the previous 2 categories.  We call these the “Refused To Pay”

We should now have 15 homes listed along with the features and benefits of each, for easy comparison.   Take the average price per square foot for each category and apply to your home, giving you a Can Pay, Did Pay and Refused to Pay price for your home.   

You should now have a rock solid, fact based model for pricing.   Can Pays are your competition for buyers, so price relative to them and consider your desire for maximum $ vs time on the market waiting to sell.  If you price in the Refused To Pay range, then you may later have to reduce price to sell. Expect to receive somewhere in the Did Pays, but don’t price it here as you will leave money on the table.

As ever, contact me if you would like a no obligation pricing analysis for your home.