Who Sets a Home’s Value?
The Science and Art of Pricing
Q: Marsha, I’m ready to put my home on the market. I had my Realtor do a market analysis of recent comparable sales. She put the value between $1,100,000 and $1,200,000. I want to put the home on the market for $1,350,000 and see what happens. My agent says to put the home on the market for $1,050,000 and the market will set the price. What does that mean? Why wouldn’t I want to go for the highest price possible?
A: Good question. It may seem counterintuitive, but I agree with your Realtor. Neither the owner nor the Realtor sets value; the market does that. Your home will sell for what someone in the market is willing to pay for it. For example, you may have recently put $75,000 worth of improvements into your home, and you want to price your home accordingly. However, if buyers don’t perceive the value in these improvements, you won’t get the higher price no matter how well your Realtor markets the home.
Think of your home as a commodity such as gold. Gold is bought and sold every day for the gold market’s perceived value. What if I purchased an ounce of gold two years ago for $2,000 and now I want my gold broker to sell my ounce of gold for $2,500? I cleaned my gold and polished it to perfection. It’s gorgeous. My broker tells me that it’s great, but right now, gold is selling for $1,870 an ounce. I demand he produce a beautiful glossy brochure with an expensive aerial photo of my gleaming gold. I want my gold ounce on all the gold websites. He must host a gold-broker open house and serve a buffet lunch to the other gold brokers. However, no matter what my broker does to market my gold ounce, the market will never pay a dime more than its perceived value. The same is true with your home.
I know things have gone sideways a few times in our market when overpricing made sense. We just experienced shock increases in the market. From around July 2020 to around September 2022, agents, sellers and buyers were taken by surprise. The confluence of COVID, extremely low inventory, and historically low interest rates drove property values sky-high. Fixers were flying off the shelves. Homes that had been listed in 2019 and sat dead in the water with no offers suddenly had bidding wars and 10 over-asking offers.
That moment has passed. Prices and values are stabilizing. Don’t expect large decreases in current values, but don’t expect bidding wars unless the property is drastically underpriced. We are currently in a state of market equilibrium. An overpriced home will not sell.
If you put your home on the market for $1,050,000 and the true value is $1,100,000 to $1,200,000, the market will see a bargain and become energized. You will probably receive multiple offers and sell the home quickly. Hooray! If you initially overprice the home at $1,350,000, buyers won’t come near it. You will have to reduce the price, the listing becomes stale, and buyers will move on. I’ve seen overpriced homes sell for less than they would have had the home been priced well from the start.
Pricing a property is 90 percent art and 10 percent science. Listen to the market; listen to your real estate expert.
Marsha Gray has worked in Santa Barbara real estate for more than 25 years. She works at Allyn & Associates, where she helps her clients buy and sell homes and with lending services. To read more of Marsha’s Q&A articles, visit MarshaGraySBhomes.com. Contact Marsha at (805) 252-7093 or MarshaGraySB@gmail.com. DRE# 012102130; NMLS #1982164.