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Fair Market Value

Mar 5, 2019

Julie,  What is wrong with listing my home with a higher price than recent comparable sales since I know people will want to negotiate? 

Answer:  While it can be tempting to ‘test’ the market with a higher than market sales price, it can have some serious consequences regarding the eventual selling price of the property and the time taken to get an offer.     Buyers today are more informed than ever before, and they certainly don’t want to pay more than fair market value.  

What is fair market value? The price a willing buyer will pay, and a willing seller will accept.   Buyers look in the price range they can afford and compare properties in their price range.   They want the best deal they can get.

I like to use the analogy of fishing!  To get the best chancing of catching a fish, your baited hook needs to be at a level were the fish are swimming.  Imagine you’re fishing for buyers.   If you put the bait on the hook and cast it in the water too high, or even out of the water altogether, it’s highly unlikely you’ll catch a buyer.  Sink the bait a little lower and perhaps one or two may come up for nibble.  Put your bait where the most buyers are, and you’ll be highly likely to catch one!

This, of course, can be further explained by the supply and demand in a neighborhood.   If you’re trying to sell when it’s a buyers’ market (Supply exceeds demand – greater than 4-6 months’ worth of inventory on the market; prospective buyers will either have a much greater choice or know that homes in that area are in less demand, often resulting in lower offers.

Homes offered in a Seller’s Market (Demand exceeds Supply – typically less than 4 months of homes on the market) will often times attract multiple offers, go under contract faster and realize a higher sales price, sometimes even over the asking price.

When a purchaser does bring on offer and you agree on a sales price, the appraisal can come in under the sales price putting the transaction in jeopardy.  If it does not appraise for the sales price, the purchaser will either need to bring the difference to the closing table or the seller accept the lower price.  Failing either of these two options, the deal will just fall apart.

I can’t emphasize enough just how important it is to price it correctly from the outset.  It has been proven repeatedly that properties priced at market value actually sell for higher than those reduced over time.

It is almost impossible to under-price homes any more.  With all the information that is available about properties on the market – almost all interested buyers will see the property come on the market immediately.    If they like it, they will inquire.   When many inquire at once, the fear of losing it comes in and people will pay what they need to get the house, sometimes even paying more than market value.

I have often seen that pricing a home just below market brings more activity and attracts more offers in a much shorter time frame, sometimes multiple offers that ‘bump’ the price over list.  

The market will absolutely speak to you.  If you are getting no showings, it means that you are most likely priced too high, and the market is rejecting you.    If you get lots of showings but no offers, it may also mean you are priced too high or some other factor such as condition or location are coming in to play (although these objections can also be handled by correct pricing)  

The bottom line is that you’re better off being in a position where you can reject offers on your home rather than the market reject your home!

Call me with any questions or to receive a complimentary market report on your home.