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The Best Pricing Strategy

By HomeBay

The best listing price strategy is to list at or below market value. A wealth of data supports this conclusion.

Zillow's Data Says Never Price High

Spencer Raskoff, the CEO of Zillow, wrote a book where he devoted a chapter to pricing and included Zillow data over millions of home sales. Zillow concluded that if you price high, you will make 4% less than if you price at or below value. That means you lose $40,000 on a million dollar sale, and $20,000 on a $500,000 sale.

Moreover, Zillow statistics demonstrated that overpriced homes typically take twice as long to sell as accurately priced homes. That means your carrying costs — interest on your loan, utilities, etc. — spike when you overprice.

Our data sample at HomeBay is smaller than Zillow's, but we've reached the same conclusion. We looked at 500 sales in California, and the results mirrored the Zillow study.

Consider Underpricing

Zillow's data doesn’t address whether underpricing to cause overbidding is the right strategy, but at HomeBay we’ve seen it work wonders. In the San Francisco Bay Area, we see sellers purposely pricing 10% or more beneath fair market value. For example, this condo in San Mateo (shown below) was priced at $599,000.

san-mateo-sold.pngThe seller, a Franklin Templeton executive, knew she had underpriced. The result? She had a high volume of showings, received seven offers and sold for $740,00.

Banks also follow this underpricing approach when they sell homes in their portfolio. Our presumption at HomeBay is they are doing so based on data showing it is the right approach. We also commonly see our home flippers following this underprice approach - and to great effect.

Don’t Step on Your Own Toes

Zillow and HomeBay can talk stats, but it can still be difficult for you as the seller to price right. Understandably, from an emotional perspective, you are afraid of underpricing. After all, you don’t want to leave money on the table. And you probably put a higher value on your upgrades and things than the average buyer does.

But think about it logically. What causes a final sales price isn’t the list price; it’s demand. It is the number of buyers competing to purchase a home at a single moment in time. If you price high, you will get less showings and less offers. You may have two or three families looking at your home for sale rather than 20 or 30 families.

The competition for your home, or absence of it, is what makes the difference when it comes to your final sales price. More showings typically means more offers. More offers typically means higher final sales price.

Conclusion: Price At or Below Value

If you don’t know exactly what your home is worth, which is the case with most people who live outside of cookie cutter subdivisions, be sure to underprice rather than overprice. Zillow and HomeBay data, as well as the actions of banks and professional home flippers, suggest you will sell faster and for more money following this approach.

Read more in: Pricing Your Home

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