How to Price Your Home if You’re Going FSBO
Going FSBO or For Sale By Owner is a great approach for maximizing the return on your property. When you sell your own home, you are eliminating the real estate agent from the picture. Thus, you can save up on 2% to 3% commission costs on top of the out- of- pocket expenses charged by the real estate agent for marketing and promotional expenses.
Not having to deal with these expenses will definitely encourage you to go FSBO. If your property is valued at $500,000, you will save $10,000 to $15,000 on commission payments plus thousands more on marketing expenses. It is estimated you can improve your margins by 6% by selling your own home.
But before you can even think about net returns, your first concern should be to get your property sold. The key differentiator for selling anything has and will always be price.
Just because you eliminated the real estate agent, it doesn’t mean you can impose your will on the market and demand the price you want. Markets are influenced by forces which are generated by buyers and sellers. Where the market moves would depend on which party is stronger and asserts more pressure: the buyers or sellers.
Pricing becomes subject to an ongoing tug- of- war between buyers and sellers. Everyone who participates in the real estate market shall be subject to these forces. Not any one person can influence market movement because the weight of buyers and sellers will always be greater.
If you price your property above the range that the market is trading, you will not register a sale. In fact, unrealistic pricing is the number one reason why an FSBO approach will fail to succeed.
As the owner who wants to sell privately, you must have basis for pricing your property. Pricing requires thought, purpose and strategy.
Here are 5 ways you can arrive at the right price for your property:
The most common way of determining the value of real estate for appraisers, lenders, and real estate agents is the use of comparables or “comps”.
What you need to do is to determine the final selling price of homes sold the last 6 months that are similar or comparable to yours. There are some real estate agencies or online websites that sell this information.
When you receive the comps, the first thing you have to do is identify the location, quality, general condition and features of the homes that were sold and compare them to yours. You can have a good idea of positioning your pricing based on the data provided by the comps.
For example, if a 3- bedroom home within your neighbourhood sold $6,000 less than a 4- bedroom house on an adjacent street, you can estimate the cost of a room to be around $6,000.
Visit Open Houses and Auctions
Open houses and auctions are among the most effective ways to get ideas on how much properties in your area are valued.
Check if there are open houses and auctions scheduled around your area. Take the time to attend some of them to get a feel of the market and the buying and selling process.
Even though comps are based on the final selling price of a home, you can get a good idea of where pricing is coming from. Remember that pricing is a tug- of- war between buyer and seller.
So it the prices listed in the comps are much lower than what are presented in the open home, it may be regarded as an indication of a buyer’s market. At the very least, you will have an idea of the range where properties are negotiated.
In an auction, if a sale was not consummated, the reserve price as indicated by the home owner would be the basis for direct negotiation.
Consider a Desk Appraisal
A desk appraisal means the appraiser will not visit your home. Instead the appraiser will pull comps from different sources. All of these comps reflect the final sales value of properties sold within the last 6 months.
The appraiser will then assign a range of value. It will be up to you where you want to position your home within the range of value. It may cost around $80 to have a desk appraisal. In exchange, you will have a formal document that will help justify or validate your asking price.
Hire a Property Appraiser
A more precise approach is to hire a property appraiser who will conduct a personal visit to your home. The property appraiser will do the following:
- Measure your property
- Take note of its features
- Take pictures
- Conduct an in- depth, detailed inspection on the condition of your home.
Once the property appraiser has done his or her job, an actual market value will be assigned to your home. The estimated cost of hiring a property appraiser is $400. You will be given a formal document to authenticate the assigned market value which you can use to support your asking price.
You should be aware that a potential buyer who plans to purchase through a home loan program may have another property appraiser come over to inspect and assess your home. The new property appraiser will not use your property appraiser’s valuation.
Conduct a CMA
A Comparative Market Analysis or CMA is one of the most effective and accurate ways of determining the prices of houses in the neighboring area. But it is a time consuming activity.
There are real estate agents who offer these services. If you plan on having a real estate agent do the CMA, make sure you disclose to him or her that you will sell your home privately. Real estate agents offer these services in exchange for having the home listed. Your disclosure will help the agent decide whether to provide the service or at the very least, charge an acceptable fee.
Regardless of what approach you use, you have to understand that pricing can be influenced by the sensitivity of the market. In a fast moving market, it will be easier to sell your home but at a price lower than what you may have had in mind.
Generally, the final selling price is usually 10% below the seller’s asking price. Ultimately it will come down to the general condition and perceived value of your home. If your home needs more repair than most properties in its category, it would not be realistic to expect a price higher than what is trending in the market.