A plethora of buyers chasing an insufficient inventory of homes creates, then perpetuates, a seller’s market. Pricing in a fast-moving market is always more difficult than in a slow-paced one. With values rising monthly, weekly and, almost, daily, sellers and their Realtors are faced with challenging pricing decisions.

Pricing based on comparables

Real estate agents and appraisers rely on the market data or “sales comparison approach” in evaluating and pricing residential properties. This entails reviewing the closed sales of relatively similar homes in locations considered equivalent. Needless to say, this is a subjective process.

When the real estate world is orbiting at a more languid pace, prices and patterns are more stable and reliable. During this more moderate cycle, a sales history of three months is considered optimum and up to six months is acceptable.

In a supercharged market, looking back three months is maximum because prices are rising so rapidly. Even that short time frame, however, may be too long for meaningful analysis. I know of a number of homes that closed escrow three months ago (and were listed four months ago) which would sell for even higher amounts today.

Pricing for multiple offers

A listing agent’s job is to get the best price for his seller. In a seller’s market, the strategy is to list at a price that is low enough to elicit as many bids as possible. The larger the number of offers, the greater the likelihood of the highest price.

There have been quite a few recent instances in this area, in the under $500,000 price range, where the closed sales price was more than $100,000 higher than the asking price. Although some may say that the list price was mistakenly set too low, we can look at it from a different angle.

Agents never can be sure how many offers will come in on a particular property. Therefore, having multiple offers on a listing should be seen as a success. In addition, if the seller benefited, the agent did his job. I say this with much empathy for buyers who are forced to battle just to buy a house.

Overpricing — the most deadly sin

Setting an initial asking price too high is detrimental to a seller. This is particularly true when homes are flying off the market. With 67% of houses sold in March on the market 30 days or less (EBRD MLS data), you don’t want to be one of the few without a quick sale. Instead of multiple offers, overpricing invites price reductions and lower offers.

Many sellers have difficulty in objectively assessing the value of their home. They often have an emotional attachment, which colors their judgement. One of the key functions of a Realtor is to help a seller arrive at an appropriate price. Your agent will recommend an asking price based on a comprehensive market analysis and knowledge of the neighborhood. Choose someone you trust and restrain your instinct for pushing up the price. Let the market do that for you.

Final thoughts

Pricing in real estate is much more art than science, especially in a white-hot seller’s market. If we, as professionals, have trouble making sense of a dynamic, swiftly changing marketplace, what can we expect of those not in the business?

When the market is boiling over, assuming full marketing and exposure, there is little chance of “leaving money on the table” by listing too low. Set a price that will cause excitement and activity from day one. A month or so later, as you receive your proceeds check from the sale, be happy you were a seller in the hottest market in history.

For copies of my previous, related articles, Multiple Offers, and Approaching the Peak, go to my Web site at www.eastbayrealtypro.com, or call me.
 

Related Articles:  Multiple Offers, Part 1 and Part 2; Approaching the Peak.