Our co-founder Tom has worked with hundreds of retirees, including his own parents, and almost all of them have made the same mistake with their home sale. We’re not talking about a small mistake. In fact, this mistake can literally cost you tens of thousands of dollars. Read on to learn what not to do when you price your home.
Don’t Do This:
Let’s cut right to the chase. The biggest mistake you can make when pricing your home is to price it based on how much money you need to get out of the sale. From an emotional perspective, this approach makes sense. But analytically speaking, it’s a terrible strategy.
Why Pricing Based on Your Needs is Bad:
Do you need to use funds from your home sale to:
- Pay off debt?
- Buy a downsized home with cash?
- Fund your retirement?
- Purchase a vacation to visit your grandchildren?
Unfortunately, it doesn’t matter.
No buyer on the planet buys based on what you need to get out of the sale. What actually dictates final sales price is competition among buyers. The seller’s needs are irrelevant. While this may sound cold, it’s true. But we can still help you make sure you make as much money as possible on your home sale. In fact, as you will see below, if you focus on the buyer, you will receive more money.
What to Focus on to Make More Money at Closing:
Instead of thinking about what you need, you have to think about what your buyerneeds. Buyers will select a home based on the following three facts:
Does your home match your potential buyer’s criteria?
Does your home have the right number of bedrooms and bathrooms? Is it in a part of town they want to live in? Is it close to work? Is it near quality schools? Your buyers have a wish list, and if you’re home doesn’t match it, it’s not the right home for them.
Can buyers afford your home?
Every buyer is different, and each one has a different budget. Based on how much money they are willing and able to finance, they’ll either be able to afford your home, or they won’t.
Is your home the best home available to buyers in comparison to similarly priced homes for sale?
How does your property compare to others on your block in terms of price and condition? Are their standout features that make it more appealing to potential buyers? Is there work that needs to be done? How are you priced relative to the Redfin home value estimator?
You have little control over item one above, but you have some control over items two and three. Is your home in good condition? If it needs some work, consider basic maintenance to improve your curb and buyer appeal. Is it competitively priced relative to other homes on the market? If so, you will get more showing requests and more offers. If not, it may be time to re-evaluate it… which leads me to the most important sentence in this post:
A wealth of statistics shows that you have the highest probability of getting the highest final sales price if you price your home at or below it’s fair market value.
Pricing at or below the fair market value creates lots of showings, competition among buyers, multiple offers and competitive bidding. If you decide to price high instead, based on your financial needs, you’ll see less showings, less offers and greatly reduced buyer competition – and you’ll lose a lot of money.
Here’s how the math works out:
- The median home sale price in California today is approximately $510,000.
- Statistics from Zillow show if you price your home higher than your home’s fair market value, your final sales price will be 4% lower than it would have been if you had priced it accurately.
- 4% of $510,000 is approximately $20,000.
So, as you can see, pricing based on your needs for retirement will backfire. Instead, you should price your home at or below fair market value.
Check out our Retiree Home Pricing Template for tips on how to accurately price your home.
Our Co-Founder’s Parents Made This Mistake:
As we mentioned in the intro paragraph, our co-founder Tom saw his own parents make this pricing mistake, and in their case, it undeniably cost them at least $30,000. It was 2010 and they listed their home $50,000 higher than Tom recommended based on comparable sales in the area. They had three offers come in during the first 45 days their home was on the market and they countered too high. Nine months later, they ended up accepting an offer that was $30,000 lower than the highest original offer they had received.
So what drove their decision-making? They were only focusing on their needs. They were trying to get an exact sales price that would allow them to pay off all their debts and be debt free in retirement.
Instead, they should have been focusing on buyer competition. They likely would have received more than the initial three offers, and they likely would have accepted one of those original offers and not lost $30,000 accepting a lower, subsequent offer.
Tom’s parent’s story is not a unique one, and we share it with you because we don’t want you to fall into the same bad place they did. The equation is simple: price right and get more.
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