Pricing your home for sale is one of the more daunting challenges for any home seller. One of the most difficult aspects is taking yourself and your opinion of your home out of the equation. The first step in pricing a home for market is recognizing that pricing is a strategy, not a direct reflection of a home’s worth or value. Allow me to explain, and at the end of this article I’ll tell you the strategy that I prefer, and why.

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Many Realtors will tell you that there are two ways to price a home for sale: at market value and below market value. I’m going to introduce two additional approaches to pricing that I’ve noticed in my years of experience. The first pricing strategy is what I call aspirational pricing. An example of this would be if you had a celebrity home or some unique architectural piece that defies conventional market analysis and therefore might justify an unsupported asking price (Contact Tim here).  Another example of aspirational pricing would be where you failed to take yourself out of the equation and you’re “looking for a buyer who sees my home as I do.”  Unfortunately, this example is not uncommon. We call this approach ‘aspirational’ because you’re hoping to find that one buyer who might be willing to overpay for your home – that’s right, overpay.  If somebody absolutely “has to have it,” no price is too high. When you hear the phrase “trying to find a needle in a haystack” when applied to real estate, you might as well just say, ‘aspirational pricing.’  To say this is seldom successful and usually results in longer days on market would be an understatement. Yet all too often, sellers try this approach all the time. Sometimes the seller can point to one house that sold at some point in the near or distant past that set the high bar.  In some cases, such a morning outlier can actually trigger a market step up, but this is rarely the norm. We see this happen sometimes after an extended period of little appreciation and a home that literally has it all and is perfect in every way.  It’s that home that sellers will often point to when pricing their home, and naturally, it would be the most expensive home in the neighborhood. This is where it’s very difficult for a seller to take the seller hat off and put their buyer hat on and be honest with themselves about which home they would buy, if given the opportunity to buy theirs or the outlier at the same price.

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The second and more common strategy is to position the home “in the market“. What I mean by this is that when looking at the comparable sales, you can see there’s one higher example, a couple of other examples that were in this range – whatever range that might be – and a couple examples that might’ve sold a little bit below, and you choose to position yourself right in the middle of that. There’s absolutely nothing wrong with this approach, and as you would expect in a normal market, it is the most common.

The third approach is where you position the home just below the latest comps. The strategy here is to build a large base of interest in the hopes that you get multiple offers and that, in turn, drives the price up. This strategy works in any market but does carry a certain degree of risk (Find out what your home is worth here). Let me just say that any strategy comes with a certain degree of risk that you’re wrong or that the market shifts, leading to either a very fast sale leaving money on the table, or no sale which requires price adjustments and longer days on market.

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The final approach is really a variation of the third approach and I call this “city pricing.”  I’ve named it so because I see this often used in larger metros. San Francisco comes to mind. New York comes to mind. Certain areas of Los Angeles come to mind. This approach is where a seller and their agents deliberately price the home hundreds of thousands of dollars below the anticipated sale price. The result of this strategy is many, many offers covering a wide range of pricing, one that often times leads to breaking records and raising the bar. So why doesn’t everybody try that approach, you might ask?  The reason I call the city pricing is because of enlarged Metropolitan areas. You can have many homes on the market at the same time, as well as many homebuyers in the market at the same time. While it can work in the suburban area, volume of traffic may or may not support the strategy. I recently had a seller ask me “do you sell your homes over asking?” And I said, that all depends on my seller and the pricing strategy that they employ.

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As you can see, there are many ways to skin a cat. So, which way is the best? I personally prefer the option to price it in the market. I might prefer to hedge a little toward the lower side in that example. However, as someone who closely monitors the market, I prefer to set a price that allows for some negotiation downward. At the same time, we could see someone coming in with a full-price offer. The reason I don’t prefer option three or four is, as I mentioned, there are certain risk to this approach. Recently a home in a neighborhood that I frequently sell in came on the market with what I deem to be a very aggressive to the low side price. Clearly, this was an attempt to get multiple offers and drive up the price. In this example, the home was a mid-century modern, very unique, very hip and cool and with certain to draw a lot of interest. However, the seller priced it so far below the comps in a market that is currently experiencing a shortage of buyers. As a result, even though the home went out with multiple offers and got bid up, it only got five or $10,000 because people weren’t willing to bid up the price. As a result, that strategy backfired and the home ended up selling for at least $200,000 below what I would’ve priced it at, had I been the listening agent. Sometimes a home will come out and for whatever reason, it was a slow weekend. Maybe there was a sporting event that distracted people. Maybe the weather was unexpectedly unusual. Maybe there’s an international crisis or any one of the number of things could produce a slow weekend, and if you’ve priced your home to get multiple offers and it doesn’t happen now, what do you do? You’ve seen homes that have raised their price, but it’s not a good look and it really puts the seller behind the eight ball on their ultimate goal of selling the home. Some agents will argue that pricing below market is the best way because you allow the market to dictate by having a bid up and if it doesn’t get bid up, it wasn’t going to sell at the higher price anyway. I’m not sure I can argue with that, but I can’t tell you that I don’t have the confidence that it always works and therefore is not always in the best interest of my client, even if it might generate a faster sale.