Quiz: Who determines the price of a home for sale?
a. The listing agent
b. The seller(s)
c. The market
d. The multiple listing service (MLS)
Answer: C, the market.
If your first guess was “the listing agent” or “the seller(s)”, you wouldn’t be totally incorrect. The seller or sellers work together with the advice of the listing agent to determine the asking price, but it’s ultimately the market–made up of buyers–who determine the sale price.
As a listing agent, I look at comparable properties to see what’s sold, what is active, and pending sales. I think about all the homes I have seen, and buyers I’ve worked with, what they liked/didn’t like.
All About the Comps
When it comes to comparable properties, there are rarely perfectly similar comps. Comps are most applicable when they are 1) recent, 2) nearby, and 3) most like the subject in condition and specs. If we’re talking about a 1-bedroom condo in a complex where there are many similar units to choose from, that certainly makes things easier, but interior finishes still need to be considered. (And other things that you can’t see in the pictures, like the smell of a heavy smoker, or cat pee.)
Another fun fact about comps: it’s nearly always true that a person can find comps to support the price they have in mind. The best agents are the ones who choose the most realistic comps. (This is also why you should pretty much ignore Zillow’s Zestimate. Especially if you live near homes that are much pricier than yours. Like waterfront.)
But the moral of the story here is that as a listing agent, I offer the value of my experience and expertise in advising my seller clients, but they are ultimately the ones who choose the listing price. Not to be confused with the selling price!
List Price vs. Selling Price
The truth is, a seller can set whatever price they want for their property. But that listing price is just a starting point, or a suggestion. It’s the beginning of a negotiation that may end up being the actual sale price. Or the price could end up somewhere completely different, like if a property is priced significantly lower or higher than the comps would suggest.
Every day, we see homes that are overpriced. It’s a common affliction; the seller thinks their home is worth more than it really is. Sometimes it’s based on material things, like a fancy remodel with imported, hand-painted Italian tiles and that big, custom mural on the wall. Or perhaps the reasons are more sentimental: when a family has spent decades in their dream house, it’s easy to over-value.
On the flip side, pricing a property under where the comps suggest is more likely to result in multiple offers and/or a quick sale instead of over-pricing and having to drop the price later.
This is where it’s super-helpful to have those comps, and a listing agent who knows buyers AND where the market’s at.
What’s the Market?
You may have guessed this–the Market is people. Buyers looking for homes, or for investment properties. Since the market is made up of humans, there is often a fair amount of emotion involved. And data. This is the main reason why it can be tough to accurately price a home to attract the largest number of buyers who are willing to pay the top price, but that is the ultimate goal of a listing agent: Attracting the most interested, qualified buyers and help them connect with the property in such a way that they must have it. (The details of how to achieve this is for another post. Let’s just say it starts with a thorough cleaning!)
Teamwork
Think of a listing agent as you would a coach or a consultant for your business. Remember that you are paying for experience and advice–and often some hand-holding as well. (No matter what people say, it’s nearly always an emotional roller coaster when buying or selling a home). But also remember that real estate is a team sport, and it’s vital that the members of the team trust each other.
Do you have questions about selling your home? Drop me a line!