Goldilocks Pricing
If ever there were a storybook home this is it -- a Highlands classic with original details and tasteful updates. But this isn’t a story about The Three Bears, it’s a story about pricing. Every home has a “just right” price. Finding it is the tricky thing — part art, part science, part emotion, part rationality. And like Goldilocks, you won’t know what’s just right until you give it a try...
But before we have a client just give a price a try, we delve into all kinds of details. So many buyers use Zillow these days, that they accept Zillow’s “Zestimate” as the best barometer. It’s well worth a look at Zillow to be prepared for what many buyers will have in mind when they show up at your home. Other buyers check the publicly available PVA (property valuation administration) assessment, on which taxes are based.
But neither of these sources has an eye into the interior of a home. Design, remodeling, general condition, all play a role in pricing. So too does the market. A house that sold a year ago may now be worth more or less, even though it’s in exactly the same condition as when it was purchased. That’s because market demand is constantly changing. And, although it does not necessarily match up with what the market will pay, it’s worth a look at what you paid, plus what you have since invested in capital improvements. Then overlay that with home inflation rates for your neighborhood since your purchase. It’s another data point that will help inform your decision.
Finally, we look at comps — homes in similar condition, with similar features in the same neighborhood that have sold in the same time frame, generally within the last year or less. However, this too is not fool proof. Every home is unique so unless you’re selling a condo with the exact same floor plan on the same floor, with the same view, with the same interior finishes… you get the idea. There will always be differences. Also, avoid the temptation to take an average of your comps. There will inevitably be one comp that is closest to your own home. It is worth more than all the other comps, so don’t give them all equal value by taking an average. Mark Twain said it best, “There are lies, damned lies and statistics.” An average is the mother of all statistics. Use with caution.
Returning to our storybook home at 1298 Willow Avenue (click here to see photos)… since I’d sold the home next door at list price in one day a year before, that price also seemed like a reasonable place to start with this home. However, this home was smaller, only had a one-car garage and was on a corner lot. Corner lots can be like swimming pools. Some people love them and others want nothing to do with them. But then there was the gracious front lawn, enclosed by a historic limestone wall and a finely landscaped backyard enclosed by a beautiful privacy fence, and, a unique craftsman style construction in a predominantly Victorian neighborhood.
So, after looking at the numbers, looking at the features, thinking about the market, we gave it a try. Plenty of people showed up and looked. The open houses were busy, everyone said it would sell quickly. But no one made an offer. The rubric I use is, if 15 people look at a home but none make an offer, the price is close, but too high. A minimum of a 5% price change is in order. I tell my clients that an offer of 3%-8% off the list price is safe, that is, it’s not likely to cause a hostile response from the seller. Similarly if a buyer feels a price is out of their range or too high for a property, they don’t want to explicitly say so by making a lowball offer. They just move on to another home. After a month, we dropped the price. That generated more traffic, increased interest at open houses, more predictions of an imminent sale and one lowball offer.
Here’s where it gets tricky. You can hang on to a price and hope that a buyer will finally come by and love your house and make a great offer. But, for every day that your home was not for sale, it was going up in value (over the long term). And, conversely, every day that your home is on the market, it goes down in value. This seems cruel, but it is most often true.
The home next door to our storybook home sold in one day. The buyers liked the price and feared that if they didn’t buy it right away, someone else would. So, they quickly made a full price offer. But if they hadn’t, and the home had remained on the market, their fear that someone else would get it first would fade. And, after a while, prospective buyers would even begin to ask, why hasn’t someone else bought it already? Days on the market are your enemy. If you hold on to your price point too long, you stigmatize your home. There may not have been a murder in your house, but people have very creative imaginations and they begin to assign whatever their favorite theory might be to explain your many days for sale without a buyer.
So, the rule is to move quickly. In the current market, that means to adjust your price at most, every thirty days, maybe faster, depending on your circumstances.
The perfect sale, when you don't look back and second guess yourself about over-pricing or under-pricing, is when you get 15 visits in two weeks and one offer that you negotiate to an agreement. Then you know you haven't given it away and you know it hasn't grown stale. Sometimes this actually happens. But the world is rarely perfect.
At the Goldilocks home, we cut the price a second time. Again by the recommended minimum of 5%. And guess what? Within a week, two buyers showed up and wrote offers. And, hard to believe, for the exact same amount. And, they were quite close to the new asking price. But, one was for cash. We had a sale and my client is living happily ever after.
The End.
THE STORY OF GOLDILOCKS AND THE THREE BEARS Back to Pricing Blog
Once upon a time, there was a little girl named Goldilocks. She went for a walk in the forest. Pretty soon, she came upon a house. She knocked and, when no one answered, she walked right in.
At the table in the kitchen, there were three bowls of porridge. Goldilocks was hungry. She tasted the porridge from the first bowl.
"This porridge is too hot!" she exclaimed.
So, she tasted the porridge from the second bowl.
"This porridge is too cold," she said
So, she tasted the last bowl of porridge.
"Ahhh, this porridge is just right," she said happily and she ate it all up.
After she'd eaten the three bears' breakfasts she decided she was feeling a little tired. So, she walked into the living room where she saw three chairs. Goldilocks sat in the first chair to rest her feet.
"This chair is too big!" she exclaimed.
So she sat in the second chair.
"This chair is too big, too!" she whined.
So she tried the last and smallest chair.
"Ahhh, this chair is just right," she sighed. But just as she settled down into the chair to rest, it broke into pieces!
Goldilocks was very tired by this time, so she went upstairs to the bedroom. She lay down in the first bed, but it was too hard. Then she lay in the second bed, but it was too soft. Then she lay down in the third bed and it was just right. Goldilocks fell asleep.
As she was sleeping, the three bears came home.
"Someone's been eating my porridge," growled the Papa bear.
"Someone's been eating my porridge," said the Mama bear.
"Someone's been eating my porridge and they ate it all up!" cried the Baby bear.
"Someone's been sitting in my chair," growled the Papa bear.
"Someone's been sitting in my chair," said the Mama bear.
"Someone's been sitting in my chair and they've broken it all to pieces," cried the Baby bear.
They decided to look around some more and when they got upstairs to the bedroom, Papa bear growled, "Someone's been sleeping in my bed,"
"Someone's been sleeping in my bed, too" said the Mama bear
"Someone's been sleeping in my bed and she's still there!" exclaimed Baby bear.
Just then, Goldilocks woke up and saw the three bears. She screamed, "Help!" And she jumped up and ran out of the room. Goldilocks ran down the stairs, opened the door, and ran away into the forest. And she never returned to the home of the three bears.