The Insider’s Guide to Real Estate / Pricing Concepts
Avoid getting shortchanged
Learn how to price your own home
The cost of mispricing your home can be significant for a homeowner. While commissions have a well-deserved reputation for needlessly eating up net proceeds— the money you take home after exiting escrow from a home sale— mispricing can cost you even more than a 6% commission on its own. And while there are many ways to go wrong with pricing as we detail below, nothing is more deadly to a seller's financial return and net proceeds than an intentionally created multiple offer situation using artificially low pricing.
When you hear a fellow seller say that they got multiple offers and that their broker did a good job, light an incense stick to commemorate the loss, because the former homeowner needlessly burned up money as they exited their home sale. Home sellers NEVER want to get multiple offers when they debut a listing in the Multiple Listing Service (MLS)— multiple offers only appear when homes are mispriced too low.
It’s been shown time and time again in the academic research that brokers and agents talk owners down on price. And there are no lower prices than the ones that cause buyers to race in with offers in a huge rush. However, the problem is that other serious buyers get left out, and multiple offer situations lead to lower prices when the dust settles after the scramble.
The topic of pricing is made even more confusing due to a number of automated valuation models (AVMs) that are common from companies like Zillow or Redfin which provide home price estimates. These numbers are famously inaccurate, but sadly only some people have gotten that message, and they create false expectations and lost opportunities. Be aware and proceed accordingly.
The problems with inaccurate pricing are significant and can cost home sellers time, money, and even paying an unnecessary buyer’s agent commission, all of which cut into the net proceeds. Getting pricing right is essential if you want the highest net proceeds, but you also need to pay attention to which broker you pick and what type of commissions they charge. Because of all the inaccurate information and misaligned incentives, it’s probably not surprising that we recommend learning how to do the pricing work yourself, if you want to truly get to the bottom of what your asset is worth.
So how do you actually get pricing right yourself? The price per square foot (PPSF) method of valuing real estate is simple to use, widespread, and far more accurate than any AVM or broker advice guiding you to lower listing prices. Getting home pricing right is an art which can take some time, but doing this critical math directly is a step you just can’t afford to outsource.