When listing your property for sale, the benefits of asking fair market value typically outweigh the pros and cons of asking too much or too little. After all, you don’t want to miss out on thousands of dollars that a buyer may pay nor do you want to chase the sometimes treacherous real estate market downwards.
“It’s never a good thing when you have to drop the price,” says Rick Valouche, president of the British Columbia Real Estate Association. “Generally, a home should sell within the first 60 days, with the most activity within the first two to three weeks. If it sits after three weeks, then we’ve come on too high.”
Dropping the price creates negative connotations among potential buyers, who may wrongly assume you’re under pressure to sell and lower their offers even further.
Valouche offers the following scenario: the fair market value for your property is $500,000 but you decide to list it for $550,000. “If it doesn’t sell within the first three weeks, we can’t bring it back to $500,000,” he says. “We have to drop it to about $475,000. You can’t chase the market down – if you chase it down you’ll never catch it.”
Realtors determine fair market value for your property using a comparative market analysis, says Don Lawby, president of Century 21 Canada. They look at three or four comparable properties currently on the market. “That’s your competition. If consumers are looking at your home, they’re probably looking at those homes as well. What are their prices?”
A realtor will factor in features that distinguish your home from the competition, such as a finished basement or upgraded kitchen and/or bathrooms. “Some people may say a wonderful kitchen sells a home … but if the people looking at your home don’t like to cook, a kitchen isn’t going to sell that home,” says Lawby. “It all depends on the lifestyle of the people looking at your home.”
The realtor will also look at three or four comparable properties that recently sold and for how much, says Lawby. Also part of the equation: three or four properties with listings that expired before being sold and their listing prices.
They’ll consider whether the current market is better or worse than when the last comparable home sold or when the selling agreements on the overpriced homes expired. Together, those factors create a comparable market analysis, which in turn lets you determine the fair market value of your home, Lawby notes.
Of course, there are exceptions to the ‘fair market’ rule, such as the seller’s motivation to sell. “If they’re just selling to try and get as much money as possible at any price, it doesn’t matter,” says Valouche.
“But if they have to move for work, are downsizing or some other reason, the asking price really matters … Sometimes in a rising market too low doesn’t matter because it generates interest.” He points to the strategy of listing a million-dollar home in the hot Vancouver market for $900,000.
Pricing the property under fair market value generated the desired interest and a bidding war ensured, netting the homeowner between $1.1 and $1.2 million. “If we had listed it for $1,050,000 to create negotiating room, the homeowner probably wouldn’t have got more than a million,” says Valouche.