What You Must Know To Price Your House To Sell
Pandemic shmandemic. Are you as sick of this thing as I am? It’s like eating the same meal three times a day for the past six weeks.
That may be a little dramatic but I have a feeling that most are feeling the grind of this thing as every day passes. With that being said, I know that we will get through this and we will come out on the other side with a greater appreciation for our lives and our loved ones.
For right now we are in the midst of it and we are learning as we go. One thing that is being reinforced to me is that we must lead the way out of this crisis with knowledge and data rather than on emotion.
What this looks like in the real estate field is that for those buying and selling a home it is even more important now than ever to base your decisions on actual data rather than emotion.
Lead With Data
The price you ask for your house cannot be based on anything but what the market will bear. We all love our houses but if you factor in your emotions or how much you have invested in your home you may find that you are way overpriced and cannot sell it for the amount you think you can.
Today we’re going to take a look at what you should consider when pricing your home in today’s environment. It involves being on top of the market and knowing whether it’s a buyers market or a seller’s market.
Supply and Demand
Knowing the supply and demand for your area will help you to determine whether it is a buyer’s or seller’s market. Looking at the absorption rate helps us to do this.
The easiest way to understand the absorption rate is to look at it in terms of the months of inventory of homes. The months of inventory is one metric that will tell you where you stand.
The months of inventory is a measure of how long it would take to sell the current supply of homes if no other new listings were added. It takes into consideration the rate of sales within a given time period as well as the current supply of homes.
Generally speaking anywhere from 4-6 months is considered a balanced market. Anything less than this would be a seller’s market because there is not enough inventory to satisfy demand and anything more than 7 months would be a buyer’s market because there is too much inventory.
As you might guess, if you are in a seller’s market you can be more aggressive in your pricing and if you are in a buyer’s market you will need to know exactly what other competitive properties are priced at so you don’t price yourself out of the market.
Decline in Listings
During this current pandemic, we have seen the active inventory of homes decline. It will be important to keep an eye on this because if it continues to drop then your pricing strategy will be different from one where there were more listings and competition.
In addition to keeping an eye on new listings, it will be important to track the listings that were active but are now on hold. Some sellers have
temporarily put their homes on hold to see what is going to happen.
The Birmingham area saw a slight increase in these types of listings through March but it seems to be declining now to more normal levels. If you don’t keep an eye on these you may think inventory levels are lower than they actually are but this could change when they are switched back to active status.
During times like we are currently in the market changes quickly. While still early in the year when COVID-19 hit the Birmingham real estate market was seeing positive signs, however, this changed when we went into lockdown.
This can make it difficult to get a handle on the market. Appraising is by nature a study of historical data, however, when things change quickly like this historical data may not give us the most accurate picture of what is happening.
Pending Sales
In real estate, recently closed listings are a very good indicator of what the market is doing. While they can still provide us with good information and context an even better indicator of market activity is pending sales.
These pending sales will eventually be closed but until then they are the best measurement of buyer and seller behavior that we have. A look at the pending sales volume can provide sellers with a gauge of how active the market is.
Again, during the current pandemic, there has been a downward trend in pending sales. Typically at this time of year during the spring season listings and sales start to increase because this is when many sellers put their home on the market so they can move during the summer and be ready for the next school year.
A drop in pending sales is an indicator of decreased demand. This decrease is no doubt caused by the pandemic and could change quickly so it is important to keep an eye on this in order to price accurately.
Sales Volume
The last metric that I would like to mention is that of sales volume and it is what you might expect. Birmingham home sales during 2020 were trending higher than last year, however, after the lockdown sales have decreased resulting in a very small net difference year to date over 2019.
It’s important to keep in mind that we need to look at these stats collectively rather than individually so that we can get a more complete picture of what the market is doing.
Key Takeaways to Help in Pricing Your Home During This Pandemic
- Inventory is down over last year which may lead you to believe that you can price your home aggressively, however it must be competitive with other similar listings
- The comps you use are critical. Pricing your home by only looking at comps that are 3-6 months old can give you an inaccurate picture of the market. Looking at current active properties and pending sales are critical in pricing your home to the market.
- Because the market is changing daily it is important to not make the mistake of pricing your home for the highest price possible and you should require whoever lists your home to provide you with a CMA that shows how they came up with the price.
- Selling in today’s COVID -19 market requires the latest in technology to take advantage of virtual showings as well as the screening of potential buyers so choosing an agent knowledgeable in this skill is important.
- A pre-listing appraisal can assist you in accurately pricing your home based on the latest market data.
Question
Do you have any additional questions about the best way to sell your home in the era of COVID-19? If so please leave a comment below and as always thanks for reading.
Thank you Tom for sharing your thoughts specially this time of pandemic. Truly your advice were very helpful in selling a house this COVID=19 time. One of my friend is also planning to sell his home and I can share this content to him. Thanks!
Thanks, Jim. I’m glad the information was helpful.
Tom, I love your phrase to lead with data. That is such great advice and it’s incredibly easy to overlook. I find sometimes sellers price to other overpriced listings, and that is such a mistake. Keep up the great work.
Thanks, Ryan. You bring up a great point that some sellers are pricing to other overpriced listings. It’s important to consider a myriad of data points, including closed sales, pending sales, and listings. This can give you a more rounded picture of what the market is doing.