The first thing you need to know about pricing a home for sale, is that it is a very closely analyzed and thoroughly researched GUESS! That’s the truth, and if anyone tells you otherwise, they are just not being truthful. When it comes to pricing a home, there are three prices to consider: the price you want to get for it, the price a buyer will pay, and the price it will appraise at. The only price that matters out of those three is the price that it will appraise at. Lenders will only lend on appraised value and since 90% of buyers are getting a loan, the most important price is the appraisal price. In response to this information, customers have asked, “Why don’t we just sell the home to someone paying cash?” We can do that, but understand that we are going to be saying NO to 90% of the buyers in the marketplace. It doesn’t seem like a sound strategy. Secondly, even cash buyers today are asking for an appraisal in their contract because they want to make sure that they are not paying too much. So there really is no getting around this appraised price value.
When we at The Hawaii Team price a home, we do so making sure with full measure that we have the comparable sales data to back up the price. Remember, appraisers hired by the banks only use the comparable sales data approach when coming up with the value of the home. Lenders will not accept the cost approach from an appraiser (i.e. the cost to build the home). When we are looking at comparable sales data, we use the same formula that an appraiser will use. We are looking for homes that are an exact match to yours, we are looking for homes that are plus or minus 25%, we are looking for homes that are within a half mile radius of yours, and we are looking for homes that have sold in the last six months. If we cannot find anything that matches these criteria, we then can go out of the area to find some comparables but there will be no guarantee that the appraiser will go along with that. Finally, if we can find no comps whatsoever, we take a guess or a shot in the dark with the information we do have. Sometimes, if we are having difficulty pricing a property, we will recommend the client hire an appraiser on behalf of the client and have them do a full-blown appraisal to find out what the exact price should be. In most cases, this solves the problem but every once in a while, the appraiser is wrong. We had a house for sale that had an appraisal of 4 million dollars; the house ended up selling two years later for $2.5M. On our team, we usually have at least two or three of us brokers looking at the comparable sales data before we give a client an opinion of values. We want as many people with expertise looking at it before we price a home for sale. We take this very seriously because if you price it too high, the house will sit and won’t sell. If you price it too low, you, the seller are leaving money on the table for the seller.
Join me next week when we talk about those home evaluation sites and whether or not they even work. Plus, what do you do if you get the pricing wrong? Can you still sell your house, or is it too late?
Dan Polimino is a Broker/Owner with The Hawaii Team, Keller Williams Realty Maui. Contact The Hawaii Team at 808-913-0899, team@thehawaiiteam.com.
