Randy Ardissone waited nervously after he put the home he was helping to sell on the market, uncertain whether the price was right.
“There was absolutely no way you could tell,” he said. “This home is so (unusual).”
Ardissone’s anxiety is common to many home sellers who face the challenge of getting the most for their property. Pricing is perhaps the most crucial–and trickiest–part of selling a home.
Ardissone’s pricing task was undoubtedly complex. The 53-year-old contractor had helped remodel a property on Chicago’s Northwest Side, and was living there in an apartment when the owner died. The owner’s father decided to sell and asked him to help.
The difficulty arose because the property didn’t fall into any simple category, and there was little to compare it with.
Built on the Chicago River around 1920 as a home for a diplomat, in Mediterranean style, it had been divided some 20 years ago into a three-flat. As an income property, it might have one price; as a potential owner-occupied dwelling with distinctive architectural features and large riverfront lot, it might have another.
To further complicate matters, the property is right on the border of the Albany Park and North Park neighborhoods, communities with different market appeal.
“It was very difficult to put a price on it,” said Ardissone. “Around the corner you have three-flats that sell for less with more income. But it has great potential as a single-family home.”
It was put on the market at $249,000 after three brokers had come in and given significantly different price suggestions, one of them $100,000 more than the price finally listed.
The first offer came in at $200,000, which was “really frightening,” Ardissone said. “I couldn’t believe I was so far off.” But a week later another offer came in at $230,000, and it sold for just above that figure.
Most homes aren’t quite such price puzzlers, but there is no formula for any house that will dictate exactly what the number on the listing should be.
“It’s far from a science,” said Sue Hall, a broker in Koenig & Strey’s Wilmette office. “Sometimes what enters into it is subjective to a great extent.”
Even so, putting the right price on a home is crucial. Hall and other brokers say pricing and marketing are the two most important elements in selling a home.
If the price is too high, the property can sit for months or years with nary an offer. If it’s too low, the seller could end up “leaving money on the table”–broker terminology for not getting the maximum possible.
And the price issue can get so touchy it ends up causing hard feelings–even lawsuits–between sellers and their real estate agents.
In one recent case in which an Evanston owner sued an agent over the sale of his house, a key contention was that the agent priced the house so high that it discouraged offers as part of a larger property scheme.
Agents have also been charged with setting a price below market so that the agent himself or a confederate could buy it and then turn around and sell it for a higher price, pocketing the difference–a practice that is clearly illegal.
Such cases are rare exceptions. Usually, if a price is wrong, it’s because someone made a mistake.
Avoiding mistakes that cost time and money requires knowledge, good judgment, experience, objectivity and often some hard work, real estate brokers say.
The first key to good pricing is knowing the market. Sellers often err by putting a value on a house based on what it cost them or what they think it’s worth and secondarily looking at the market, according to Doug Ayres, president of Prudential Burnet Realty, which has more than 25 offices in the Chicago area.
“That’s coming at it backwards,” he said. “A lot of people take their house as the center and try to fit it into the market when they should look at the market and see how the home fits in. You should look at the market first.”
And, he added, knowing the market is more than just going through the conventional process of finding “comps,” comparable houses that recently sold in the area.
Comps are essential, of course, but they aren’t everything. “You have to be well educated about trends and conditions, not just other inventory,” said Ayres.
The changing state of buyer demand, interest rates and general consumer confidence are also important, he noted.
And finding a home that is truly comparable can be difficult. In a subdivision in a new suburb where houses are very similar, the task is simplified, but in older or variegated neighborhoods it can be nearly impossible.
For brokers, the house in a class by itself can mean losing a listing. Hall recalls one property, a 20-year-old Wilmette home with contemporary styling that was unlike anything else around. She suggested marketing it at $625,000, and the seller was incensed, telling her another broker had advised a price of $875,000.
“I’m scratching my head, thinking I must be losing it,” said Hall. About a year and two brokers later, the house sold–for $625,000. “I was right, but who cares? It was a difficult house to price,” she concluded.
As that case illustrates, a seller has to be willing to adjust the price if the market response is poor. And a price change is better if it’s made quickly, advised Ayres.
In a lively market such as exists today, the seller of the average home shouldn’t wait more than a month or two, he said. “If you don’t have a very good response in 30 to 45 days, look at the marketing and the pricing. People wait too long sometimes before making an adjustment.”
Ayres’ preference is to remarket the house without advertising the fact that the price has been lowered, a practice frequently seen in signs that say “Reduced” or “New Price.” That can create a negative connotation about the property or cause buyers to think they can wait further for even more reductions, he said.
Ayres’ point about reacting quickly to the market underlines another key point about home pricing: It’s a matter of time as well as money.
A seller’s time frame affects motivation, which in turn affects price, pointed out Jerry Hardin, a broker at a Century 21 Stanmeyer office on Chicago’s Northwest Side. “You match motivation with people moving because they must, and because they just desire to,” he said.
Accordingly, Hardin said he will price a property more aggressively (broker terminology for lower) if the seller is a transferee who needs to make a fast exit than he will if the seller is a retiree who wants to move out eventually to some place warmer.
In the usual sense of the word, a “motivated” seller can mean a quick sale, but sellers can also be motivated by feelings that get in the way of selling.
Hall noted that sellers may ask too much for a house because they have sentimental feeling for it, because they need the money to buy another house, or because they paid too much for it in the first place and want to get their money back.
Brokers recommend that a seller commence the pricing process by asking three or four different real estate agents to make a listing presentation, which will include both price advice and a marketing plan.
The seller should make sure that the agent can provide a factual basis for the price, including comps and other market information, said Hall. More than a quick look through the house is required.
Ardissone finally chose Century 21’s Hardin for the listing after asking three agents to make presentations. “One person didn’t keep his appointment,” he recalled. “Another walked in, went through the place in 35 minutes and gave his opinion of what it would sell for with no comps.
“Jerry took a long time to make his analysis. He went out to pick out comps–everything in a three-block area,” Ardissone added. “We spent 2 1/2 hours on his presentation.”
One pricing method new to the area attempts to get around price uncertainty by embracing it. Market value pricing, used starting last year by Prudential Burnet, sets a range rather than a fixed price to start from. The method was introduced in 1995 by Prudential Real Estate Affiliates in other parts of the country under the name value range marketing.
Instead of pricing a house at $399,900, a range will be set at either $330,000 to $410,000 or $370,000 to $450,000, and the seller will agree to respond to offers in those ranges. The idea is that more buyers will be attracted to make offers.
It’s assumed that most buyers will make offers at the low end of the range, but the program’s designers say buyers always start out with a low offer anyway, and this just rationalizes the process and eliminates the buyer’s fear of insulting the seller.
Ayres said his company’s agents only use it in a small percentage of cases, mostly in upper-bracket homes. “It’s presented to the seller as an option to create an added level of interest in the home,” he added.
