How to Get Top Dollar (the 3% Rule)
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So let’s talk about the most important tool in selling your house: Pricing.
How do we decide on an initial listing price that will net you top dollar and still be attractive to buyers?
There’s a statistic that gets thrown around a lot and I want you to see it. It is that, on average, Homes that Sell, Sell for 96-97% of List Price.
Does that mean that we can just list it at any price and have it sell? Well let’s examine that.
One strategy that is often used is the Price it High- Come Down later strategy.
It seems like a good strategy because it leaves lots of room for negotiation, and it employs multiple price drops to entice buyers, and supposedly will allow the seller to test the market and find the highest price the market will bear.
However this often fails and works against the best interest of sellers for several reasons, here are the 3 main reasons I see:
- Traffic– You never get a second chance at a first impression, and by tracking internet traffic we’re able to see that the most interest a property receives happens during it’s first two weeks on the market and then dramatically drops off. Even subsequent price reductions do not attract as much traffic as the huge spike in activity during the initial listing. So we don’t want to waste that opportunity. We want to make sure that Pricing, Presentation, and Promotion are all dialed in and are as perfect as they can be so that we can capitalize on that traffic.
- WWWTH– If a property doesn’t sell within a reasonable amount of time, buyers start to wonder “What’s Wrong With This House.” This always results in fewer and fewer showings and limited opportunity to get it sold. The longer it sits, the less likely it is to sell. Additionally, when buyers look at listings they feel are overpriced, they are overly critical. They nitpick and consciously guard themselves from falling in love with the house because they don’t want to pay that much for it.
- Price Drops– Price drops can make a seller appear desperate and often invite lowball offers. If buyers notice a lot of price drops on a property, they will expect you to keep dropping, even past market price. This strategy can end up costing you valuable time and equity in your home.
So let’s look back at our statistic and I think the Price it High-Come Down strategy misses the most important part of this statistic. The most important part is: “Homes that Sell.” There are many homes that do not sell, and many more that don’t sell quickly or for market value.
So let’s rephrase it to help us as home sellers decide on an attractive listing price.
Let’s say, Homes that Sell, List for only 3% above Sale Price.
So how do we know the sales price? Well, remember how pricing it high and coming down is done to “test the market?” Well, let me point out that if we look at comparable homes that have sold in the last 3-6 months in the same neighborhood or area, we can find a pretty good basis for comparison. Those home sellers have done that test for us. So we don’t really have to guess to find a realistic sale price.
This is the purpose of a CMA, or a Comparative Market Analysis, which I provide for Free for all of my potential home sellers.
Of course average price per square foot is the most commonly used metric, but we need to be careful when choosing comparables in order to ensure accuracy. We need apples to apples comparisons.
- Same neighborhood, not crossing major roadways
- 1 story vs. 2 story
- 3 car garage vs 2
Bottom line is we will determine the price we should expect the home to sell for.
Now, I will recommend that if this market price is not a beneficial sale price for you, don’t list the home. Don’t list it with me or with anybody else because that’s where the market will push you.
So what if it is a beneficial price?
Then our strategy is to add 3% to that Marketable Price and set that as our List Price.
This strategy is designed to hit the market hard with an attractive offer that can’t be ignored.
We’re taking the stance that we’re being really upfront and honest with buyers so they don’t have to fight us over the price and they can bring a good honest offer. There’s not a lot of room for negotiation, because we can all see that this is a marketable price, so let’s just get this deal done.
It facilitates speed and it facilitates actually getting the price we want.
In the worst case scenario, we come down a few percentage points and still get top dollar in the market.
In the best case, we make a little more.
So how do we support that extra 3%? That’s where our Premium Presentation and Promotion come into play. We need to raise the value of the home, or at least the perceived value of the home in the minds of buyers. Next time, we’ll discuss the relationship between value, perceived value, and price.