Setting the asking price

Knowing two things about how to price a home correctly will expose the propertyto more people likely to make an offer.

by David Rathgeber   The selling-price-to-asking-price ratio is probably the most important single statistic available about your real estate market. It is simply the percentage of the final asking price that is agreed upon in a contract. When calculated for a large number of home sales, the ratio is invaluable in determining what a home’s asking price should be, once the fair market value is known. The ratio tells how much "fat" is required in the asking price, on the average. Sellers and buyers alike usually are surprised to find the ratio is frequently well above 90%, even in markets that are slow.

For illustrative purposes and ease of calculation, we will assume that the ratio for your market is 95%. The 95% ratio confirms that the asking price should be set 4% to 5% over the fair market value as established by your careful market-value analysis. This is a price that should bring an offer. Alternatively, with the price too high, there will be no offers to negotiate. Another way to interpret a 95% selling-price-to-asking-price ratio is that the average home does not obtain a viable offer until it is priced within 5% of its fair market value. This has been an illustration: Do not assume the selling-price-to-asking-price ratio is 95% in your market. See if you can extract the necessary data from your MLS database and make the calculation yourself.

Your seller needs to know that a home must be priced correctly in order to sell: If it is overpriced, it will be seen only by buyers who can obtain more for their money elsewhere. A Chevrolet will not sell in a Cadillac showroom. A Chevy is not what those buyers are looking for. To give the Chevrolet a Cadillac price in the hopes of fooling a buyer is even more ludicrous. In any price range, it is the properly priced properties that jump out as good value and obtain offers. Realize also that you and your seller cannot ask $200,000 for a home and end up with a (95%) contract for $190,000 if the fair market value is only $150,000. The "market" is much too clever for that.

In major markets where you can utilize a computer database search to sort out homes for a buyer, your seller can gain a little-known advantage by pricing the property exactly on round numbers. We’re not selling clothing, groceries, or used cars. By pricing on a round number, you will get a few more visitors and sell a bit faster. An example will help illustrate this point:

• Agent A has buyers looking in the $180,000 - $200,000 range.
• Agent B has buyers looking in the $190,000 - $210,000 range.
• Agent C has buyers looking in the $200,000 - $220,000 range.

If your home is priced on the round number $200,000, it will be considered for showing by all three agents above when they do an MLS computer search for available properties. If your home is priced at $199,999, only Agents A and B will find your home in their computer outputs. Agent C will not even see that your home is for sale.

Of course, not every home can be priced on an even $100,000 interval, so use increments of $10,000 or prices ending in $25,000 or $75,000. This pricing tactic will gain you a competitive edge over most others. "Over how many others," you ask? Just check the home prices in the Sunday newspaper to see how many agents understand how the real estate market really works.

David Rathgeber is consistently among the top REALTORS® engaged in residential real estate. He has written for REALTOR® magazine and has spoken on various topics at the NAR convention. This article is excerpted from David Rathgeber’s Agent’s Guide to Real Estate, which is available in major bookstores and through Internet booksellers such as Amazon.com. Copyright© 2000-2001, David Rathgeber. All rights reserved. For information about David’s keynote presentations, please contact the Frog Pond Group at 800/704-3764 or susie@frogpondgroup.com.

Illustration © Digital Vision.

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