Central Ohio Real Estate Market News

Well, home sellers won’t like to hear this, but it’s well recognized in the industry that the buyer actually sets the price.

Just as with any retail product being sold, whether it’s a car, a cheeseburger or clothes for the family, buyers vote with their dollars and their feet. They make choices based on the price of the product, its overall current value, perhaps its long-term value, how well the product meets their specific needs and they decide to buy or not buy. The buyer doesn’t consider what the manufacturer paid to produce the product or the margin the store might like to earn when they sell the product.

Think about that the next time you buy a gallon of paint. Do you really care what it cost to make the paint? Or do you decide based on the price of various brands, and which one offers the smoothest application or the potential for a one-coat application? It’s no different when buyers are shopping for homes. Like it or not, buyers don’t care what the seller paid for the home, or what it cost to add the upgraded fans, or how much the seller needs to net in order to buy their next home.

Home buyers may be viewing homes in several suburbs, in various school districts, in multiple neighborhoods and of varying styles. Often they narrow their selection down to 2 or 3 homes then evaluate the pluses and minuses that each home offers to them. They’ll compare the price of the home along with the money they’ll need to spend to fix it up or to redecorate to their preferences. They also consider the price that other homes have sold for in the neighborhoods of these homes. They’ll consider whether their total price paid (price plus fix-ups) will place the home in the low, middle or high-end range of the neighborhood. In today’s market, they may (or should) consider whether the neighborhood prices are declining, staying flat or increasing.

If the buyer considers the price or money the seller has invested in the home, it’s only to evaluate the likelihood of the buyer being able to buy the home for the amount they have decided it’s worth. If the buyer decides the home is only worth $300K and it’s priced at $330K because that’s what the seller owes or has invested, then the buyer may decide it is futile to make an offer and instead merely takes the home off the table for consideration.

When sellers are considering how to price their home, they need to remember three things:

1. Their listing agent has seen the inside of hundreds of homes, done hundreds of CMA’s for both buyers and sellers, has heard hundreds of buyer feedback comments on their listings, and has a pretty good feel for what a home will sell for.
2. The buyer has more knowledge of market pricing and seen the inside of more homes than the seller has, thus is in a better position to judge the price of a given home as compared to all the other homes they’ve viewed.
3. The seller has the least knowledge because they’ve not likely been in other similar homes to compare upgrades or condition.

A few months ago, I read a blog post where the blogger suggested that an overpriced home actually helps sell their neighbors’ homes … rather than their own home … because the overpriced home becomes a benchmark comparison that “legitimizes” the value of the lower priced homes. Barbara Corcoran, real estate guru that frequently appears on The Today Show, addressed this issue this week by saying that a seller could achieve the most money by pricing the home 10-15% below market. I don’t think the price needs to be quite that low, but certainly pricing the home within 1-2% of what it is likely to sell for, WILL generate more money for the seller because the seller will get an offer much faster and often at or close to list price because the buyer will know that it is a good value and that the home may receive competing offers from other buyers that also recognize the value.

I attended a seminar last year on home pricing strategies. The speaker mentioned that sellers can price their home in one of two ways: (1) they can price it to sit, or (2) they can price it to sell. The buyer will then decide which one of those two choices it will be.

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