In a market where demand is strong and it has become more difficult to figure out how much buyers are willing to spend, how do real estate agents determine the right asking price for a house?
It has never been an exact science. These days, agents often find themselves starting at a higher price than is borne out by the facts and go from there.
Supply and demand, of course, dictate asking price. Obviously, if the supply is low, the asking price will have to be adjusted upward to meet it. In general, though, the asking price is a balance obtained by considering a neighborhood and the sale prices of comparable houses within the context of market conditions.
Demand in some areas of the country is so strong that agents put up a number and someone pays it because the buyer fears that the asking price will be higher next week. Out-of-town investors often help to further inflate prices.
Some current markets have shades of the late 1980s, when property appreciation and inflation made proper pricing beyond real estate agents’ control.
Comps still count in hot market
In a normal market, agents should be able to take comparable sales and come up with something that looks almost like an appraisal, with all the pluses and minuses.
Now, many agents look at the comparable and the competition to see how the house stacks up against the others on the market. Then they will tell the seller that they’ll look at the price again after two weeks of good marketing and re-evaluate it.
If there are no second showings or offers after two weeks, the asking price is probably too high.
How the property looks, its size and location are major factors in determining asking price. Sometimes, though, the house has features that are so special that agents adjust the asking price upward after looking at comparable sales over the last six months to a year.
Builder sets new home prices
Determining prices for new construction is totally different, because the seller is the builder, and the ones who are the most savvy about the market are the most successful.
First, the builder determines the construction costs and keeps that number to the side. Then the builder checks out what the competition is doing. This means considering the features that the builder offers and the competition doesn’t, the square footage and the builder’s specifications.
Different houses are priced based on type versus square footage and features. After coming up with a sale price, construction costs are factored in to make sure the builder is making the profit he expects.
Marketing a model home is a snap compared with marketing an existing home, because the builder is in control of the situation.
With existing homes, the houses reflect the tastes of the sellers, which may not be what most buyers are interested in.
A seller’s “taste” can be a plus or a minus. If a buyer wants hardwood floors and sees that the seller has replaced them with a less appropriate and too personal a choice, then there is a problem.
Curb appeal and amenities all contribute to pricing. Buyers shop in price increments based on what they think they should be getting. If the asking price is outside the increment, the house will sit. If a buyer knows that he will get a three-car garage in the $300,000 price range and sees a house at $275,000 with the three-car garage, he’ll buy it.