How Understanding Supply & Demand Makes Pricing Your Home Easy
Estimated reading time: 4 minutes
If you are an experienced home buyer or seller, you know it’s rare when a lender’s appraisal is significantly different from the offer price. That’s because the age-old question of “What’s my home worth?” is almost always met with the answer of “Whatever a buyer is willing to pay.” While that’s a simplified view of the situation, an understanding of how residential real estate pricing works is critical when selling a property.
The value of your home fluctuates with many market factors so if you are thinking about selling your home, it will need to be priced at a price where buyers perceive its value. It doesn’t matter so much what you think your house is worth or what you have invested but rather what buyers think your house is worth and how it compares with other homes in your market in the timeframe that you’re planning to sell your home. In that sense, your home is a tangible asset and needs to be priced according to the law of supply and demand after factoring in some additional market considerations.
To illustrate this point, the graph below shows how a home price may fluctuate over time given any of the following market conditions:
- Inventory – How many homes are on the market, how long are the homes staying on the market without an offer, and how many more are expected to come on the market in the near future?
- The Property – How does your home compare to others in your market in similar conditions with similar features? Is yours priced too high or is it priced to sell? Does it have any special features (e.g. larger lot size, or a backyard pool) that make it stand out to a larger pool of prospective buyers?
- General Economy – Mortgage interest rates, the unemployment rate, and the outlook of the economy as a whole all play a large role in whether or not people feel the time is right to buy or sell property.
- Local Market Conditions – Are people wanting to move into town or a specific neighborhood? Is there increased demand, or are people moving out? What are the job growth, cost of living, and school ratings in your area?
At any given time, the price of your home will change. The objective is to put it on the market at a price that is enough to attract buyers while not underpricing the property and leaving money on the table. This is where it is critical to team up with an agent who understands the concept of supply and demand. Along with knowledge of the local market and its seasonal fluctuations, an experienced agent will provide a fairly close estimate of a property’s value given the current market conditions. Of course, nobody has a crystal ball, but being able to pull all these variables together to provide enough information for you to arrive at an estimated value when listing your home is a valuable skill that a good listing agent will have.
If you need to sell your home quickly, the listing price should be set slightly less than the estimated value. Otherwise, it may sit on the market too long, and buyers will begin to wonder why it’s still for sale. For more reference on this topic, refer to the article “Get More Money By Keeping “Days On Market” Low.” When the listing price is not aligned with the market, buyers will pass on your home or wait for another time when the listing price is lower, and you may miss out.
I would be very happy to provide a Comparable Market Analysis (CMA) and discuss pricing your home with you as you consider selling so you may have more success in getting the highest value in the least amount of time.
