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Pricing home intelligently is key to a successful sale

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  • Michael DeMello

Question: It has been a seller’s market for Hawaii residential real estate, with more demand for homes than supply. How has this generally affected how sellers price their property? 

Michael DeMello
>> Company: Redfin
>> Position: Hawaii market manager
>> Age: 41
>> Career background: Started working in real estate in Hawaii in 2002; opened Redfin’s first Hawaii office earlier this year.

Answer: I have noticed that people are tempted to price their homes above market value and "test the waters," with plans to drop the price if it doesn’t sell right away. But in order to attract the right audience of buyers and sell your home quickly, pricing it correctly from the start is critical, as buyers tend to assume that if a home sits on the market for more than a month or has a price drop, then there’s something wrong with it. Our data shows that on average, home listings get 4.5 times more online visits during their first week on the market than they do a month later. And homes with price drops get half as many online views during the week after the price drop than new listings get after they hit the market.

Q: Typically how is an asking price arrived at?

A: I carefully counsel my clients using a pricing strategy that’s mostly science, but partly an art, taking into account the latest data on homes in the neighborhood that have sold and are listed, as well as what we know about the homes and the current demand for them. My analysis takes into account the following:

>> Past sales — often agents refer to these as "comps," and they are actually homes that have recently sold that are similar to the current home in question.

>> Competition — current homes for sale in the neighborhood and nearby areas.

>> Size and condition discrepancies — difference between the subject property and other homes that are currently on the market or recently sold homes.

>> Macro market conditions — how long it has taken for other homes in the area to sell and general market conditions for the area.

>> Potential buyer profiles — does that market consist of first-time homebuyers, investors, cash buyers, second-home buyers, etc.

>> Unique qualities of the subject property — the attributes of the home that really stand out against the competition and recent sales.

Q: Would you say most sellers want to list their property for a price that is equal to, more than or less than what they think a buyer will pay?

A: I’ve found that most of my clients do a lot of research on the market and come to me with a good idea of what their home is worth. They are looking for an agent who is realistic about the price and will help them with an appropriate pricing and marketing strategy.

Q: What are some upsides and downsides to asking for what you might call an above-market price, meaning a price above what a comparable property recently sold for?

A: The biggest problem with overpricing a home is that as it sits on the market for a period of time, a stigma develops around the home because it hasn’t sold. It’s important to remember that even if a buyer is willing to offer above market price and he or she is financing the home, the sale is contingent on the appraisal coming in at the contract price; if it doesn’t, the buyer may be able to cancel the contract if the seller is not willing to reduce the price of the home or meet the buyer somewhere in the middle. The buyer will also need extra funds and must be willing to pay for an above-market price because the lender will only lend on the collateral at the appraised value.

Sometimes pricing the property higher than that at which a comparable one sold is the right strategy, if data and other indicators show that home prices in the neighborhood are increasing or if you know there will be more demand for your home than for the comparable one.

Q: What are some upsides and downsides to asking for what you might call a below-market price?

A: Unlike the downsides to overpricing your home, there’s less risk involved with underpricing your home, especially if it’s a seller’s market. In fact, some agents will use this strategy to create a frenzy of buyers competing for the home, which usually drives the price even higher. In a seller’s market there is a high possibility of multiple offers, which will give the seller the ability to choose the best and strongest offer.

The downside is that buyers and their agents may realize you’re using this strategy to drive a bidding war, and that may turn off some of those potential buyers who would rather not be involved in a frenzy where they may need to waive contingencies in order to compete for the home.

Q: Are most homes selling now for the asking price, above the asking price or below the asking price?

A: Most homes are selling right around the list price. In the month of May the median sale-to-list-price difference in Honolulu was minus 2.4 percent, which means that homes were selling slighter under their list price. The variability of a home tending to sell for more or less than list price usually depends on the strategy that was used to price the home at the outset. If it was underpriced, it may sell for more and vice versa.

Q: Does this change depending on whether the market is in an up cycle, down cycle or flat?

A: The sale-to-list-price ratio can depend on the state of the market, but ultimately the pricing strategy is the biggest determining factor on how the home will sell. Right now prices are currently on an up cycle.

Q: What is an interesting story you have experienced regarding the pricing of someone’s home?

A: I recently had a client price their home slightly above the market and the home sat for a few weeks. They then dropped the price to be more in line with market conditions and got several offers in less than a week. It just goes to show you how pricing is so important.

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