The Town Broker

Pricing Your Home For Sale: The 5% Rule

Pricing your home correctly so that you get a sale (and don’t sit on the market forever), is one of the most important skills that a professional Realtor can offer. I met a seller in Westfield the other day who was selling his home on his own (For Sale by Owner). It is a terrific house… well maintained, and in a desirable neighborhood. I asked him how he came up with his asking price. He assured me that he kept a close eye on recent sales in his neighborhood, and that he knew the likely selling price for his home. Incidentally, I though his target price was correct.  But then he shared how he came up with his marketing price, and that’s where things got problematic…

He told me that he knows many buyers in today’s market look to negotiate a hard bargain. He simply added a 15% cushion to what he thought was the correct sale price. This way, he’d have room to negotiate.

On the surface, I understand his logic. Unfortunately, the numbers aren’t on his side. The surprising truth is that you can actually get MORE for the sale of your home by asking LESS for it. Let me explain…

Pricing Within 5% Improves Sales Outcomes

While it’s true that buyers today are looking for a bargain, they also recognize value when they see it. Homes that are priced correctly (within 5% of the final selling price) can disappear fast…often with multiple bids (yes, even in this market). But with inventory levels up in much of our market area, buyers can be picky. If they think the price is too high, they’ll simply wait for a price correction. And if sellers wait too long to get it right (more than 30 – 45 days), the market will simply pass them by. The end result is that their price improvement will need to be pretty dramatic in order to catch the buyer’s interest again…bigger in fact, than it probably needed to be.

Still not convinced? Then check out these numbers:

The following table includes all sales between 2/1/2010 and 3/30/2010 as reported in the Garden State MLS, meeting the following criteria:

• Price Range : $400,000 – $600,000
• Towns: Westfield, Cranford, Scotch Plains, Fanwood, Mountainside, Clark, Garwood & Roselle Park

Admittedly, this is just a small sample taken in our market area. But these numbers have been duplicated numerous times by others throughout the years. I’ve seen studies that include hundreds upon hundreds of NJ sales, across all markets and price points. And the numbers ALWAYS come out the same way! 

The take away? Don’t build in too large a cushion for price negotiation. Homes that come to market within 5% of their final selling point represent VALUE to today’s buyer. They sell FASTER and retain MORE OF THEIR ORIGINAL PRICE than their less competitively priced peers.

If you would like to know the market value of your home, simply contact me.

Tags: 5% Rule, Home For Sale, Home Pricing, List to sale ratio, LP/SP

This entry was posted on Tuesday, March 30th, 2010 at 10:25 am and is filed under Real Estate 101, Real Estate Industry News, Sellers. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

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