Tips to Price Your Home in a Competitive Market to Start a Bidding War
The process of selling your home can be a challenge, and your decision to sell your home without the use of a listing agent can make the process all the more complicated. From preparing your home for sale to handling all the offers and contract negotiations, selling for sale by owner (FSBO) will take hard work. However, to make things all the easier, you might be selling in what is called a “seller’s market.” Pricing your home just right so that buyers will start a bidding war, leaving you with tons of buyer interest that buyers will outbid one another to purchase your home, is the idea.
In this article, we will discuss how you can price your home to start a bidding war between buyers.
How Your Home’s Value is Determined by the Pros
When home appraisers value a house, they utilize a variety of tools, models, and tactics to arrive at an appropriate and accurate value. Home appraisers answer a series of questions that regard the exterior and interior of the property, describing the neighborhood with an included street map that shows comparable sales used in the home value calculation, a professional sketch of the exterior view, justification for the square footage calculation, and recent market sales data.
Cost Approach
The cost approach also called a summation approach, is among the most accurate when a property is new. Homebuilders and developers will use the appraisal model to make sure their new units are priced appropriately for the market. Insurance adjusters will also use the cost approach appraisal model when they are assessing the replacement costs of a new home due to total loss or damage.
Sales Comparison Approach
The sales comparison approach is the most common appraisal model that is used by real estate appraisers and is the model preferred by most residential mortgage lenders. The sales comparison approach accounts for individual interior and exterior features of the home in conjunction with recent sales of homes that share similar traits. When doing a full walk-through, the appraiser will evaluate the square footage for the home’s exterior and interior characteristics, no matter how unique. The value of the home in question will then be compared to similar properties in the area. The buyer will be able to see a comparison of their property against others with similar features and their sales prices. The overall appraisal values that are generated in the sales comparison approach are averaged to produce a fair market value and are considered the most accurate.
Conducting your Own Research to Find a Price Range
Home appraisers tend to use multiple appraisal models, and listing agents will take the sales comparison approach. Listing agents “pull comps” from the local MLS to set the initial asking price. Comps are shorthand for comparable recent home sales in your specific area and market. If you don’t have direct access to an MLS, something that can be accessed through a local broker for a flat fee, you can pull your comps and sort through recently sold. Here are some criteria for you to use to set your asking price that a listing agent would also use:
- Size: Compile sold homes that are similar in size to yours with a deviation of 10%. Pay close attention to how the square footage is calculated and note if areas of the home, like the crawl spaces or garage, are factored in. Use comps as close to your house as possible.
- Timing: Although real estate is cyclical, you will need to look at the last three-month date range to get the best idea of how homes are currently priced. You won’t be likely to use these sales to influence the value of your home. You can instead see how your market has fluctuated by using the information to decide whether this is the best time to sell.
- Location: Most appraisers will look within a one-mile radius of the address to make sure not to cross school districts and natural neighborhood dividers like freeways and major roadways. Start by compiling at least three relevant sales comps in your radius.
- Updates and Features: Depending on your specific market, the types of updates and features can influence buyer interest. Following the sales comparison approach, you will want to further refine your comps by looking at recent sales with exact or close-match upgrades.
Pricing a Home to Start a Bidding War in a Buyer’s or Seller’s Market
Start a Bidding War in a Seller’s Market
If you want to start a bidding war in a seller’s market, you will want to price your home at market value. In a seller’s market, buyers might be frustrated at being beaten by all-cash buyers. They will be surprised by a home listed at market value and might be motivated to put in a quick offer.
Start a Bidding War in a Buyer’s Market
If you are in a buyer’s market, price your home between 5-15% below market value, as pricing your home this way will capture the interest of buyers and will indicate you are motivated to sell.
Bottom Line
To start a bidding war, consider that price is not what you think your home is worth but what you think buyers will be encouraged to bid higher. Do your research and understand the market conditions. If a bidding war successfully starts on your home, you will receive higher quality offers, and more of them, helping your home to sell faster. Take notes from the professionals at Hendricks Team Realty, real estate moguls who specialize in the sale of homes located in beautiful urban neighbourhoods in Niagara Falls, ON.