An Auctioneer’s Guide to Real Estate Pricing

Kareen Kinzli Larsen. Kinzli Real Estate.

 

By: Kareen Kinzli Larsen, Realtor RE/MAX Alliance

 

Full disclosure, I am a real estate professional and not an auctioneer. However, the first three days after a new listing hits the market feels like an auction, and as the listing agent, I am the auctioneer.

Pricing has never been more critical as in this high-stakes market. The days of pricing a little higher so that you can negotiate down are long over. In fact, pricing a listing too high has counteracting results. A listing that is on the market for more than 7 days is considered shop-worn and with every additional day on the market, the end price to the seller drops. Here is the key for perfect pricing and the best chance at starting a multiple offer showdown:

  • The strategy begins with sold comparables. Although cash offers are prevalent, if a buyer needs a loan for the purchase, the property will have to appraise. We begin by determining the highest price that the property can appraise for. In a rapidly appreciating market, sold comparables are old news, but appraisers must use them as the basis for their evaluation.  This base value is important to keep in mind as many buyers are offering to pay the “appraisal gap” in additional cash at closing as part of negotiations. This is when a buyer pays the difference between the list price and a buyer’s over-asking final offer if the property doesn’t appraise for the contract price, thus protecting the seller against a low appraisal. Once the maximum appraised value is determined, the next step is to scout out the competition.
  • Knowing what your competition is under contract for is key. Before determining a final list price, we contact every listing agent that has a similar property under contract to see if they received multiple offers, and if so, how many? If several properties are under contract well over asking with a high number of offers, this means there is strong buyer interest for this type of property, and we can push the price envelope. If not, it is advisable to stay closer to the appraised value. 
  • Pricing a property directly in line with the competition is critical in this rapidly appreciating environment. Even though similar properties are under contract for tens of thousands more than the asking price, the buying public doesn’t know that. All they see on Zillow or Realtor.com is the list price. Even though a property is expected to sell over asking, it can’t look overpriced online compared to the base list price of every other listing. It is as if you are setting an opening bid price for an auction.
  • The ultimate goal is to set up an environment for multiple offers. A competitive price online combined with outstanding marketing will pique buyers’ interest. The more buyers, the better the auction. Every buyer who has gone to war to win against competing offers will tell you they paid significantly more than they would have otherwise because they were competing. 
  • The story doesn’t end with the highest price. Buyers are sweetening the deal by offering sellers everything from no inspection demands to paying for seller closing costs, to allowing the seller to stay in the property for 30-60 days for free. There is no doubt that competition creates results in this seller-takes-all market.  

 

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