During the past decade we’ve seen a lot of fluctuation in the market for home prices in Southern California, and all across the United States. Between the rising demand for real estate, and the financial crisis of 2008, we’ve seen a lot of changes. As a result of this, pricing a home correctly can be very difficult for a lot of realtors. I mean I am often asked the value of a home and sometimes even I am stumped. What is a home worth? Whatever a buyer is willing to pay!
One of the most important aspects of healthy working relationships between realtors and clients is getting the pricing correct. We all know that when the realtor and the client see eye to eye it makes it very easy to get the home priced correctly, and makes for a speedier sale.
And who doesn’t love that?
However, one of the things that happens a lot in the real estate world, is that a client will overprice their home, which can be disastrous. They think they can always reduce it later but they can never go up in price. This is correct in theory, but this is SO, SO, SO, WRONG!
I always assure my clients that I am going to be brutally honest and price the home right the first time from the get-go. I’m not going to give an inflated price just to get the listing–I always turn down clients who aren’t willing to price correctly. Because I know that it won’t work out well for anyone. And so what if another broker gets the listing? The agent is within a few months going to ask for a price reduction. The seller will soon realize the home is overpriced anyway and guess what… he or she is not going to be happy I promise you that.
Here is what I tell every single potential client when I meet with them to sell their home… “You are probably going to interview ten people to sell your home and nine out of ten of them may or may not tell you what you want to hear. But the problem is if you don’t price a property to get multiple offers in this current market… the home is going to sit and guess what… it’s going to need to be reduced in price and the longer it sits the more the home becomes less desirable. Now the buyers have leverage. The buyers are going to now look at the house and say ‘Well I don’t see a line around the block to buy this home. Here’s what I am going to offer you and you can take it or leave it. Or when you become more realistic you can come back to us.’
So the point to all this is if you start getting into the price reduction game yiur only hurting yourself. My sellers often say ‘Well it’s not like we are not willing to negotiate… but we need cushion room. Let the buyer make an offer.’
My response… ‘No one wants to make offers dramatically less than the asking price. They believe the seller is not motivated. And no one wants to offend anyone. Today information is so readily available that people know what the home is worth that they are going to look at before even seeing it. It’s not like it used to be.”
I’ve come up with a formula for how I accurately price homes the first time, so that my clients are always happy from the get go. While no one is perfect, this process is the easiest way to make sure that price is easily configured and will get the home sold as quickly as humanly possible.
Square Footage and Building Type vs. Land Price
One of the first things that I look for when pricing properties is the size of the home is the location and size of the property.
A very expensive condominium or apartment will be worth much less in the long run than a smaller home with less amenities. The reason being that with a home you own the land, whereas with a condominium property you do not. And the land is what appreciates over time. Not the structure!
It’s very important that sellers recognize that the structure that makes up a home is not as important as the land it sits on. The land, especially in high value markets such as Southern California, is what is worth the most money.
Next, I look at the square footage and see how the house compares to other homes in the same neighborhood. This is important because it really is a major driving factor in the final price of the house. Everyone wants to get as many square feet for their money as possible.
Location, Location, Location!
Next, I look at where the house is located. For example a home in Beverly Hills is going to sell for a lot more than a home in the Valley. Zip codes can be trendy, so it is important to have your finger on the pulse of the current market, and to know not only which neighborhoods are hot, but which types of properties within those neighborhoods are selling well.
I always advise my clients to pay for a better location, because in a decade or more it will be worth more than what they paid for it to begin with.
Luxury amenities are either hit or miss for most properties. While some homes are updated with the latest and greatest, it’s important to remember that the technology will probably be outdated in as little as five years. So most of the homes that I sell may not have amenities that factor in.These types of renovations can play a big factor in the final price of a home.
Renovations (Future Proofing Your Home)
Last but certainly not least, is the concept of future proofing your home. This is where the client spends money to upgrade the home to the current trends in things like security systems, smart appliances, and even saunas, wine cellars, and other amenities.
I advise my clients to go big on renovations, or leave it alone.
No one cares about spending $30,000 to redo your master bathroom–it’s not that important. However, if you focus on the major rooms such as the master bedroom, the kitchen, and the living room–you can certainly increase your home valuation and get your money back many times over. Ideally however I say do everything or don’t do anything at all!
More often though, the interior design itself (when done correctly) can add immense value to the price of the property. Luckily, I studied interior design and know a thing or two about what pops and what flops.
Good interior design can make new owners feel like they’ve just entered into their dream house, whereas outdated tiles, counters, and other amenities can make the house seem like it’s overpriced.
What’s Your Home Worth?
Hopefully this has helped you to think about how your home measures up to the current market. Of course, I’d love to help you find out exactly how much your home is worth, and give you the fairest assessment of what you can realistically expect when you are ready to sell.
Even if you aren’t ready to sell today, it’s always good to have a general idea, so that it can help inform your decision making in the future.
And even if you are looking to buy right now, this information can help you to look at the different aspects that you should consider when making a wise financial investment so that your new home can retain its value, or ideally, be worth more than what you paid for it.