Pricing your home in the current market
When we talk about pricing your home in the current real estate market what should we really be looking at? There are some basic indicators that we have to consider when discussing how healthy the Birmingham housing market is. These indicators include the following: Number of homes sold, Average/median sales price, Days on market, Total inventory, and Months of supply.
You’ll want to keep in mind that the numbers we’re discussing here are for the Birmingham market as a whole and individual cities, neighborhoods, and subdivisions can and will vary. Even though you may not live in the Birmingham area you can still use these tips when pricing your home. As you hear all the time, real estate is about the location and if you want to get more detailed information about a certain area, an appraisal is your best bet. Knowing the statistics for your area can help you in pricing your home.
Let’s take a look at the various statistics and then we’ll see how they can help in pricing your home.
Number of homes sold
The number of homes sold so far through February 2017 in Birmingham is up from the same time last year by over 8% in January and 5% in February. This is a positive sign that there are buyers in the market who are ready to “pull the trigger” so to speak in their buying decision rather than just “kick the tires” and be content to keep looking.
Average/median sales price
Both of these figures provide a way to measure how prices are moving but the median price does seem to give us a little more balanced indication since it is not affected as much by the high and low prices like the average prices are. The average sale price for 2017 is up 6.8% over 2016 and the median price is up 2.7%. This is small but it is still moving in a positive direction and both figures have shown positive movement over the past 5 years.
Days on market
The days on market statistic measures how long it takes to sell a home after it is listed. This can vary depending on many factors such as supply and demand but typically a lower number indicates a hard or seller’s market and the higher number is a sign of a soft or buyers market. The current Days on Market for January and February of 2017 is at 77 days which is below the past 5-year average.
The total number of homes listed for sale within the Birmingham metro area is up from last year but still lower than the prior 5-year average. Keep in mind that even though total inventory is down you need to look at how many months of supply there is to determine if there is a shortage of homes. Depending on demand, a limited inventory can help to drive the average/median price up and the days on market down.
Months of supply
The months of supply statistic, also known as absorption rate, helps us to determine if we have a shortage, oversupply, or balanced inventory of homes. As you might expect, by looking at the other indicators we currently are in what I would call a balanced market because of the current 6 months supply of homes.
This is lower than the 5-year average, which is close to 8.5 months. Looking at the Birmingham market as a whole we do not have a shortage of homes, as that would be an inventory of 0-3 months. Also, remember that having 7 plus months of inventory is considered an oversupply.
So what do I consider when pricing my home?
Taking the current state of the Birmingham real estate market into consideration let’s look at what you should focus on when pricing your home.
1) Consider the current inventory of homes- Even though there may be a shortage of homes in some areas this is not true for the Birmingham market as a whole. This means that you can’t go crazy in overpricing your home. Some people believe that with a shortage of homes you can price your home way over market value and still sell it. This is not true. No matter what the situation is with supply, you still need to price your home correctly or buyers will pass on it.
2) Price your home competitively- There are willing buyers ready to purchase based on the yearly increase in the number of homes sold. By properly pricing and marketing your home so that it is visible to those looking to buy you will maximize the exposure and your chances of selling.
3) Consider the time of year you’re selling your home- Be careful making assumptions about the market just because this month’s sales are greater than last month. Real estate operates in cycles. If you look at sales over a long period of time, as in the one above, you will see trends during different parts of the year. You need to take this into consideration when pricing your home.
Looking at pending sales gives us additional insight into what is actually happening rather than making assumptions. A pending sale that has been appraised, buyers have approved financing, and they are just waiting to close is one the best comps and indications of value there is.
4) Be realistic about overpricing your home- Everyone makes mistakes and if you or your agent were overly ambitious and priced your home too high you’ll know because it will most likely take longer than the average days on market of 77 days to sell. If this has happened you need to correct it as soon as possible.
By changing your list price based on recent sales and current listings your home will be priced to the market and this will help it sell more in line with the average days on market that I previously noted.
5) Take your owner glasses off and put your buyer glasses on- Owner glasses are typically rose colored and they help to filter out a realistic list price. Everyone loves their house and thinks it is the best one in the neighborhood but this is not a realistic way to approach setting a list price.
The more realistic way to set a list price is by measuring what the market reflects and considering what buyers are doing. With access to listings online, with pictures and mountains of data, buyers are sifting through all this information and will kick out an overpriced listing in a heartbeat. Use market data to your advantage to make an informed pricing decision.
Do you have other questions about pricing your home? I’d love to hear from you, so leave a comment below. As always, thanks for reading.