Pricing Your Home In This Market
One of the first questions a potential Seller asks is, “What’s my home worth?” In today’s competitive real estate market, many factors intersect when it comes to determining the list price of a luxury home. Pricing is an art form that reflects not only the quality, square footage, location, floor plan, style, and uniqueness of the home, but also how the home fits into today’s marketplace. If you are over priced, the few showings you will have will more than likely be real estate agents using your home to highlight the value of another property. I can not think of one “high-end” property that has sold in Gallatin Valley in the past 5 years in which someone over-paid for the property.
Here are some of the key factors to consider when arriving at a List Price:
Motivation: My former partner, Stuart Tilt, taught me much about real estate, starting with Motivation as a key to pricing. Why are you selling? Are you downsizing? Facing dire financial problems or finding your mortgage effects your lifestyle? Is there a health issue, or just a desire to move? Motivation absolutely effects your pricing, as pricing effects the probability of selling.
Your Home: A number of factors go into pricing a home: the square footage, setting and land (especially whether the property has a water feature), style and quality of construction, architect, builder, level of finishes and materials used, alignment of spaces in the interior, views, sense of privacy, systems within the home, outdoor living spaces, and on and on.
Today’s Buyers know what they expect and want within a given price point. They know the difference between a Subzero and GE Monogram refrigerator. They look for granite counters even in the children’s bathrooms. They expect radiant heat and air conditioning, a dog bath and wine cellar within upper priced properties. They know immediately if a home feels “worn” or “dated” and they expect price reflecting the home’s aging. They also appreciate the finer things and notice subtleties, such as the type of wood flooring and cabinets, a bar sink, sound system, and work out area.
Most Buyers know within 30 seconds of entering the front door if they are interested in your home. Stepping inside, they feel an emotional tug. A good real estate agent immediately senses this shift in attitude and that’s when it is appropriate for the agent to begin the process of pointing out factors and details that have gone into establishing the List Price. Buyers generally decide for themselves whether their agent feels your home is properly priced, and they factor this into their own assessment. Frequently, Buyers are as unrealistic as Sellers in thinking what a house is worth, though, obviously, at different ends of the spectrum. Pricing is probably the number one determination in bringing a property to a successful closing.
Land and Setting: In the Gallatin Valley, land is finite due to zoning requirements, conservation easements, and the large percentage of land owned by the state or federal government. Choice acreage—for the most part—has already been purchased and built upon. Valuing the land, its location, access, viewshed, water rights, privacy, landscaping and natural beauty requires being able to put it into context with other offerings on the market and to make the compelling case to a potential Buyer of why the land is worth a certain dollar figure. Each potential Buyer places a different value on components of the land, such as landscaping. An educated real estate agent will explain the cost, time investment, and uncertainty in growing towering aspens and evergreens in the Gallatin Valley and why the covenants and HOA are protecting the property. They will know the premium paid for live water, and the importance of drive time to Bozeman, ski areas, fishing.
Replacement Value: Before the real estate downturn in 2007, pricing a home was often based on replacement cost. What, per square foot, would it cost to build today? What is the land worth, along with the landscaping, the architectural fees and engineering, even the cost of carrying the project for the 18 months plus to build? In today’s market, replacement cost is not a consideration from the Buyer’s perspective. They generally acknowledge replacement costs only to satisfy themselves that they are getting a great deal. However, your real estate agent should know the replacement cost for your home, factoring in all the various items that add-up. Properly presented to another agent of a Buyer, replacement cost is compelling information. Along with your actual cost to build, replacement cost is a great beginning point in determining your listing price. Higher priced properties in Gallatin Valley tend to have sold between 2010-2012 for 10% to 35% below replacement cost. There are always exceptions, but they are few.
Appraisal: Most Buyers, even cash Buyers, include an appraisal contingency in their buy/sell contract. All banks require their own appraisal. Today, appraisals are ordered by a bank through a “pool” of appraisers with no ability to choose who actually performs the appraisal. Since there are so few homes that have closed for over $1,250,000 in the Gallatin Valley, and appraisers need “comparables” in actual sales within a 12 month period and 10 mile radius, appraisals are fraught with uncertainty. It is very difficult to get a home appraised if it is at or above replacement cost. If a home doesn’t appraise, it generally falls out of contract with the Buyer deciding to terminate. On rare occasions, the Buyer and Seller will negotiate a new price based on appraisal. Having your home pre-appraised will not make a difference since each loan requires a new appraisal and each appraiser approaches their task differently. If your home is over priced, you can be fairly certain it will not appraise accordingly.
In summary, let me say again, pricing a home is an art form based on many moving parts. I pride myself on knowing the Gallatin Valley market and having a strong sense of what a property should be listed for. Having built high-end homes, renovated others, and designed and installed landscaping, I understand the true costs involved in creating a special home. I know who your competition is, and how your home fits within the market. I work with my Sellers to insure we are both comfortable with the pricing and competitive within the market. If you are thinking of listing your property, there’s a reason to call me.