Perhaps nothing is trickier in listing a property than deciding on the right asking price.
Too high, the argument goes, and prospective buyers will eliminate themselves even before seeing the place.
Too low, and the seller risks obtaining what the place is worth.
Finding the sweet spot depends on whether it is a balanced, buyers’ or sellers’ market.
I recently came across a blog post in which market value was well defined by no less than Fannie Mae, which helpfully characterizes it this way:
The most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller, each acting prudently, knowledgeably and assuming the price is not affected by undue stimulus. . .
Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby: (1) buyer and seller are typically motivated; (2) both parties are well informed or well advised, and each acting in what he considers his own best interest; (3) a reasonable time is allowed for exposure in the open market; (4) payment is made in terms of cash in U. S. dollars or in terms of financial arrangements comparable thereto; and (5) the price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale.
In other words, as real estate agent Lisa Hicks, the Monmouth, Me., blogger distills it, market value is what well-informed buyers and sellers are willing to accept in today’s market.
As much as I dislike the tactic, it is justifiable to ask for more than a property’s market value in a buyers’ market. That’s because buyers, knowing they hold the best cards, will walk if they can’t negotiate a price lower than the ask.
Conversely, I tend to favor a listing price below my take on the market to encourage multiple offers. Another real estate broker, Dian Hymer in Inman News, considers this option at length and concludes that it’s a reasonable way to go in a high-demand area.
Hitting the fair market value doesn’t strike me as a mistake either. If buyers come in too low, a seller has the option of standing firm.
However, I recognize that the market value approach is somewhat risky: Many buyers just won’t be happy unless they perceive the opportunity of a bargain, and they’ll walk. Yet a buyer and broker who haven’t researched the market to understand a property’s value probably aren’t worth trying to capture anyway.
Sellers and their brokers have to narrow their analysis of the market from region to city to neighborhood and, in the Big Apple, even to block or building. Then, they must judge the active competition and comparative sales over the appropriate time period with a critical eye on property variables and sufficient experience to set the right price.
Most of the time, there is at least a polite struggle between seller and broker as to the correct ask. That can be a good thing, but a seller who tugs too inflexibly for a price that’s too high is bound to lose the war even while winning the battle.
Either way, both client and broker need to understand that listing at a price that produces the best result is as much art as science. And the experience of the broker really should take precedence over the hopes of the seller.
Tomorrow: Compromising positions
To take your own bite out of the Big Apple, start your home search here.
Licensed Associate Real Estate Broker
Senior Vice President
Charles Rutenberg Realty
127 E. 56th Street
New York, NY 10022