SALE PRICE VS. MARKET VALUE VS. PERCEIVED VALUE
If you have a buyer who is bank-qualified and ready to purchase, or a cash buyer willing to pay a specific amount for your home, this amount is known as the “sale price.” The sale price is an objective figure, unaffected by external opinions or influences.
Once the sale price transaction is finalized, it will impact the market value of homes in the surrounding area. This is because the sale price of your home becomes a reference point for future sales. To determine the appropriate sale price for your home, you should consider several factors: comparable local sales provided by a professional real estate agent, the condition of your property, and the current supply and demand in the housing market.
The potential selling price of a property, determined by its features, benefits, and the current supply and demand, is known as its “market value.” This is an estimate of what buyers might be willing to pay under normal market conditions. However, a homeowner might value their home higher than its market value, based on personal attachment or perceived worth.
In a balanced market, the sale price (the actual price a buyer pays) and the market value tend to align closely. However, buyer and seller perspectives can significantly influence the perceived value of a home. For example, a seller might see mature trees as a valuable feature, while a buyer who dislikes yard work might view them negatively.
Additionally, spending $10,000 to replace a roof may not necessarily increase the sale price, as buyers typically expect the roof to be in good condition. This means that while the investment ensures your home is market-ready, it might not translate into a higher sale price because buyers view a functional roof as a basic requirement rather than an added value.
However, other factors can significantly influence the market value and sale price of your home. For instance, proximity to quality schools can be a major selling point for families with children, who are often willing to pay a premium for the convenience and educational benefits. Similarly, being close to bus routes and public transportation can attract buyers who rely on these services for commuting, thereby increasing the property’s appeal and potential sale price.
Access to medical facilities is another critical factor. Homes located near hospitals, clinics, and other healthcare services can be particularly attractive to older buyers or those with health concerns, who prioritize easy access to medical care. These conveniences can create additional value that certain buyers are willing to pay for, potentially boosting the sale price of your home.
This is called the “perceived value”. Perceived value is how much a customer believes a product or service is worth. In the case of a home, it’s based on their personal needs, wants, and expectations, rather than the actual cost. If the perceived value of your home by a potential buyer is greater than the actual price, the more willing they are to buy.
THE COMPARATIVE MARKET ANALYSIS
A Comparative Market Analysis (CMA) is a report prepared by a real estate agent to help determine the value of a home. It involves analyzing the prices of recently sold properties that are similar to the home in question, often referred to as “comparables” or “comps.” These comparable properties are chosen based on their similarities in size, location, age, and quality. It typically includes:
- Comparable Properties: The report lists homes that have sold recently (usually within the last three to six months) and are similar in key aspects such as the location, number of bedrooms and bathrooms, square footage, and overall condition.
- Market Trends: It considers current market conditions, including supply and demand, which can affect home prices.
- Adjustments: If the comparable properties have different features or conditions, adjustments are made to account for these differences. For example, if a comparable home has a new kitchen and the subject home does not, the value might be adjusted downward.
- Final Estimate: The CMA provides an estimated market value for the home based on the analysis of the comparables.
STRATEGIC PRICING APPROACHES
When it comes to finding a buyer, pricing your home based on a Comparative Market Analysis (CMA) is crucial for making a sale. If done correctly, this comparison report not only provides a great listing price but also reduces the chance of your home being under-appraised. A well-priced home can attract showings within the first few days on the market and generate offers within weeks. However, there are still other factors to consider when pricing a home for sale. Here are three common approaches and pricing considerations in this example:
A homeowner decides to place their home on the market and must choose an asking price. By rough estimate, the home’s market value falls between $290,000 and $300,000 and there are many homes are on the market.
- The “Leave Room for Negotiation” Approach: In this approach, the market value is “stretched” to, say, $305,000. While the overpricing might make a seller happy, it might not entice buyers immediately, and could make comparable homes seem more attractive. The home will likely not sell quickly at this price because there are limits to what buyers are willing to pay or what the bank will finance.
- The “Price It According to Worth” Approach: This approach sets the price right between the market value benchmarks, at $295,000. Home shoppers will likely group this home with similarly priced properties, knowing they can purchase it for $295,000. This strategy aims to attract buyers who are looking for fair market value.
- The “Underpricing Generates Interest” Approach: Underpricing the home at $280,000 can motivate buyers and potentially create a bidding war. However, this strategy might derail the goal of selling the home for more money, as the initial lower price could set a ceiling for offers.
Strategic pricing is crucial when selling a home. Setting the right price involves a careful balance: it should be attractive enough to draw interest and competitive offers, yet high enough to ensure you receive fair market value. Pricing too high can result in your home sitting on the market for an extended period, which can make it less appealing to buyers. Conversely, pricing too low might lead to a quicker sale but could mean leaving money on the table.
CONCLUSION
In conclusion, understanding the distinctions between sale price, market value, and perceived value is crucial for effectively marketing your home. The sale price is the actual amount a buyer is willing to pay, which directly influences the market value of surrounding properties. Market value is an estimate based on various factors such as comparable sales, property condition, and market demand. Perceived value, on the other hand, is subjective and varies from buyer to buyer based on their personal needs and preferences.
By leveraging a Comparative Market Analysis (CMA), homeowners can set a competitive and realistic price for their property. This analysis considers recent sales of similar properties, market trends, and necessary adjustments to provide an accurate market value estimate. Additionally, strategic pricing approaches, such as leaving room for negotiation, pricing according to worth, or underpricing to generate interest, can significantly impact the success of the sale.
Ultimately, the goal is to find a balance that attracts potential buyers while ensuring a fair market value. Properly pricing your home not only facilitates a quicker sale but also maximizes the financial return on your investment.
NEXT UP - PART 3. EXPOSURE
Stay tuned to this multi-part blog for insights in selling your home.
