Determining the Right Price
Determining the Appropriate Price for Buying or Selling a Home
We are all aware that housing prices have declined at historic rates here in Arizona and throughout the nation. It is hardly an ideal time for most people to sell. With prices so low, it seems like a great time to buy However, with falling prices, buyers are afraid that the prices will continue to decline and they won’t make their purchase at the bottom of the market. So how do we determine the best price to list our homes if we are selling, and how do we know what the right price is if we are buying?
Let’s start with buying a home. The truth is that no one knows when the housing prices have reached their lowest point. We know that prices are much lower than they were a year ago, and lower still than they were two years ago. You, as a buyer, know how much money you are comfortable spending and what you can afford each month for a mortgage payment. You can compare a property to similar properties and determine that the price is competitive for the current market, but there is no way of knowing if the price will continue to decrease.
Gary Keller explains this concept in his book, Shift: How Top Real Estate Agents Tackle Tough Times. He says that when he will often draw a downward line on a piece of paper and ask his clients to stop him when he is at the bottom. It is often when he nears the bottom and starts going up again that the prospective buyer will then tell him to stop. This exemplifies that if one waits until it starts going up again, they will not be at the lowest price and there is no way to pre-determine where that point is.
As long as you feel you are within your comfort zone, you feel you’re getting a fair price according to the current market, and you are happy with the prospective home, you need to pull the trigger and not look back. It does no good to continue to watch the prices every day and get upset when you see homes going for less than what you purchased for. There are a lot of factors to be considered, and you are most likely in your home for a number of years and the long term value of that house is what you should focus on.
So what is the correct price to list your home at if you are selling? There is not an easy answer for this either. The first step is to work with a real estate professional to determine the market value. But, you can and should be involved in the process of determining your list price. You are going to have to be realistic and rational during this process. With values dropping the way they have, many people have a very hard timing coming to terms with the current value of their home, especially when they know how much higher the value was just a few short years ago.
A detailed comparative market analysis is vital to determining the appropriate market value of your property. However, it has been demonstrated that a new listing has a window of opportunity to sell, and if your house is not able to engage prospective buyers when it is first listed, then it may have a much tougher time selling as it stays on the market. This is why you really need to try and price your property ahead of the market. If prices are steadily dropping, you may need to price your property a little below what recent closings have gone for, simply because those closings took place in the past and you are pricing for the future. You want to make sure that you have your home priced right immediately so you can hit that window of opportunity.
Determining the correct price of any real estate transaction is never an exact science and there will always be uncertainties and disagreements, but if we educate and inform ourselves as much as possible going in, we can feel more comfortable with our decision.
