How do I price my house to sell?

Your price is a prediction about the next buyer

A list price is not a reward for how much you love the house. It is a guess about what the next qualified buyer will pay. Fannie Mae defines market value as the most probable price a property should bring in a competitive and open market. Notice the word probable. Not possible, not hoped for.

Buyers do the math whether you do or not. They scroll every listing in your price range, they walk the open houses, and their agent pulls the recent sales. Your house gets judged against all of it before anyone even parks out front.

The market also does not care what you paid, what the kitchen cost or how much you need to net for the next place. I have never seen a buyer ask for the seller's mortgage statement before writing an offer. Facts over feelings: the price has to come from evidence the market already produced.

What the data says happens when you overprice

Zillow Research looked at every home listed over the course of a year (published May 2016). Homes that sold almost right away sold about 1% below list price. Homes that sat about two months sold about 5% below list. The longest listings, around 11 months on average, sold about 12% below list.

Zillow also found that homes that sold 10% below list spent five times as long on the market as homes that sold at list. Zillow was clear that this shows a pattern, not proof of cause. But anyone who has watched a listing go stale knows the pattern.

Every price cut resets the conversation in the worst way. Buyers who saw the first price now wonder how low you will go, and they wait to find out.

A stale listing starts to look like it has a secret. Buyers wonder what is wrong with it. Usually the only thing wrong with it is the number.

How I build a price from the ground up

1. Start with closed sales. Use homes that sold nearby, ideally in the same neighborhood or subdivision. Fannie Mae's appraisal rules point appraisers there first, and buyers think the same way.
2. Pick the most similar sale, even if it is older. Fannie Mae says sales from the last 12 months should be used, but the most recent sale is not always the best one. A sale from eight months ago that matches your house can beat last week's sale of a very different house. An older sale can still help if it is adjusted to today's market and to your house.
3. Read the trend in real time. Check what happened over the last few months, not only the last year. A market can rise over 12 months and still be flat or soft over the last 60 days.
4. Adjust for real differences. Size, condition, lot, view, garage. Measure what buyers actually paid for each one with paired sales, meaning two similar sales that differ in mostly one way. Rules of thumb are where good prices go to die.
5. Check the competition. Active and pending listings are not proof of value, but they are the homes buyers will compare you to this weekend.

Condition and price per square foot will fool you

The most common pricing mistake I see is a seller who takes the average price per square foot in the zip code and multiplies it by their square footage. That math treats a 1,800 square foot house with a new kitchen the same as a 1,800 square foot house with a carpeted bathroom. Buyers do not.

In the markets I work, buyers react to condition more than age. A remodeled 1960s house can sell above a tired 2005 house down the street. If your house is the tired one, price it like the tired one, or fix things first.

Be honest about the things you have stopped seeing. The roof you have been meaning to replace. The deck that wobbles a little. The wallpaper you think is charming and every buyer under 70 thinks is a hostage situation. A buyer's inspector will see all of it, and the buyer's offer will reflect it.

A pricing checklist before you go live

• Pull at least three to six closed sales that match your house on location, size, condition and lot. Write down why each one is better or worse than yours.
• List every active and pending home in your price range nearby. Visit the open houses if you can. Be the buyer for an afternoon.
• Check the recent trend in your neighborhood: are list prices being cut, are homes going pending faster or slower than a few months ago?
• Make a list of upgrades with dates and permits. It helps the agent, the buyer and the eventual appraiser.
• Think about search brackets. Buyers filter online by round numbers. A price just above a common cutoff can hide you from the people most likely to buy.
• Decide your plan now for what you will do if showings are thin after the first couple of weekends. Deciding before you are emotional is much cheaper than deciding after.
• Consider a pre-listing appraisal if the house is unusual, the market is shifting or the family cannot agree on a number. An independent opinion ends a lot of dinner-table arguments.