The Importance of Prep and Pricing: A tale of Two Houses…

When a house goes on the market, it has the most exposure to the largest number of ready, willing and able buyers in the first week.  If those buyers do not perceive value in what you are offering, it will take 6 weeks for an equal number of ready, willing and able buyers to see your home.  For each day that passes without an offer, your house becomes less valuable to those buyers.  On any given day, there are educated buyers who are ready to buy now – if they perceive value.  These buyers have been house shopping for at least 4 weeks, have seen everything on the market, have access to a lot of sales data online, know what homes are selling for and recognize a good value when they see it.  A savvy seller will be able to capture the attention of these buyers and sell their house quickly, for top dollar, with a minimum of contingencies. “How?” you ask.  The key is to prepare and price your house properly.

First, a few words about preparation:  Most buyers in the greater Washington area put less than 20% down on the purchase of their home.  They may have had to bring cash to the table to sell their previous home or they may be just starting out and not have a lot of cash saved.  This means that after they pay closing costs, they will not have a lot of cash to make improvements to their new home.  This simple fact presents an opportunity for the savvy seller.  As a buyer tours a house, they make a mental list of what they will need to do to make the house work for them.  The smaller the list, the more desirable the house is.  Yard cleanup, de-cluttering, de-personalizing, neutralizing and updating before putting your house on the market will go a long way toward maximizing your home’s appeal.

Now, let’s look at pricing.  I can’t over state the importance of taking your personal bias out of the process when you price your house.  Of course you think it is the best house in the neighborhood and you think the water tower next door makes the best possible neighbor and you think the road noise sounds like waves crashing on the beach – it’s your house!  The problem is that those ready, willing and able buyers may not see the same value that you do.  With all the data available to a buyer, there is no excuse for them to overpay for a house and they won’t.  They also recognize value and they want it!  If you want to sell your house (as opposed to just “list” it), it is impossible to under price it.  That pool of well educated, ready, willing and able buyers will not let that happen.  I can assure you they will not politely say to each other, “Oh, please, you take this house.  You have been looking longer than we have.”  They will compete with each other to get your house.  They will write the best offer they can, with the fewest contingencies and the highest price they can afford. You will get top dollar out of the market.

One of the best examples of the power of prep and pricing is illustrated by the following story.  These are 2 actual homes in a popular Bethesda neighborhood.

House one listed the first week of January, 2011 for 649,000.  It had 5 bedrooms and 3 full bathrooms and a walk out basement.   The lot size was 9027 square feet and it had about 1872 square feet of living area.  The owners purchased a home warranty that transferred to the buyers.  They cleaned up the house but did not spend any money preparing the house for sale.  The sellers were not in a hurry to sell.  They were willing to wait for the right offer.  After being on the market for 30 days, they reduced the price to $625,000.  It went under contract 1 week later, 41 days after it went on the market.  The sale was contingent on the purchasers completing a satisfactory home inspection, getting their financing approved and the house appraising for at least the sales price. During the home inspection, the purchasers found some minor items that needed to be repaired and the sellers gave them $300 to pay for the repairs.   Settlement was March 15 (70 days after it went on the market).  The final sales price was $600,000.  The seller’s net after the cost of repairs was $599,700, $49,300 UNDER their original asking price.

House 2 was right next door.  It listed in the middle of February for $599,000.  It had 5 bedrooms, 4 full and 1 half bathrooms and a walk out basement.  The lot size was 8269 square feet and it had approx 1,722 square feet of living area.  The sellers purchased a home warranty that transferred to the buyers and spent about $4500 painting, re- finishing the floors and professionally staging the home for sale.  There were over 120 people at the 2 open houses that were held on Saturday and Sunday, the first weekend.  5 days later, the sellers received 12 offers.  The sellers were able to choose the best offer out of 12.  They received a non-contingent offer for 32,500 over the asking price.  The buyers offered to purchase the house “as-is”.  The sellers did not have to make any repairs because there was no inspection contingency.  This house went under contract 7 days after it went on the market.  Settlement was scheduled for 28 days after it went on the market.  The final sales price was $631,500.  The sellers net after the $4500 they put into the prep and professional staging was $627,000, $28,000 OVER their asking price.

Here is a summary of the stats of these 2 houses:

Feature:                                 House 1 :                                                 House 2:

Bedrooms                           5                                                              5

Bath                                       3                                                              4.5

Year Built                           1956                                                       1959

Lot size:                                .21 acre/9027SF                              .19 acre/8269SF

Living Area                         1872SF                                                 1722SF

Warranty                             yes                                                          yes

Tax Assessment                574,900                                               563,000

Total taxes                          6326                                                       6206

List Price:                             $649,000                                            $599,000

List date:                              1/5/11                                                   2/16/11

Contract Date                    2/15/11 (41 DOM)                            2/23/11 (7 DOM)

Price reduction                 30 days                                                 no

Offers                                   1                                                                12

Under contract                 40 days                                                 7 days

Contingencies                   Financing                                             none

Appraisal

Home Inspection

Settlement                         70 days                                                 28 days

Sales Price                           $600,000                                              $631,500 (32,500 over asking)

Prep:                                     $0 (cleaning)                                      $    4,500 (cleaning, paint, floor refinish, staging)

Cost of Repairs                  300                                                         0

Net Sales Price                  $599,700                                              $627,000 (28,000 over asking)

Which seller would you like to be?

The key to receiving multiple offers is to make your home so valuable that buyers will fight over it.  An experienced agent who knows how to do a thorough market analysis is an invaluable asset to the savvy, well-educated seller.