Pricing a home to sell is both an art and a science. With so many factors in the equation—market conditions, housing characteristics, demand, location—it can be a complex process.
And while sites like Zillow and Redfin can quickly pop out a home value, they’re not always the most reliable option to get the best price possible for your home.
Instead, a professional who understands your local market and your specific house will be able to price it appropriately to get the best possible deal for you as a seller.
To understand what goes into determining the asking price of a home for sale, we chatted with Sonoma County-based Realtor® Steven Cozza with The Cozza Team. Here’s what he told us.
Steven Cozza: My three big predictions for the real estate market in 2024 are:
With the lower interest rates and higher inventory, there will be more activity in the market. And this is great for the local economy—there’s a statistic that says every time there’s a home sale, it creates two more jobs in the economy and contributes over $80,000.
How you price something depends on the type of property that you’re working with. For example, pricing an investment property is one of the easiest property types to do because it’s based on the cap (capitalization) rate. This is an equation that looks at the return on investment and investors typically want a cap rate of 5-6% on their real estate investment.
You can also look at a price-to-rent ratio, where you divide the annual rents by the price of the home. This is most accurate for single-family homes as there are fewer expenses than a multi-family property. Cap rates take expenses into account, so it’s more appropriate to use for multi-family investments.
Then, whether it’s an investment property or not, your realtor will also consider the timing of buyer activity to price competitively.
Buyer interest in a property is like a wave—there’s peak interest in the first couple weeks after listing and then wanes after that. If it’s sitting too long, you’re going to get lowball offers—buyers have more power to negotiate.
To make sure you’re getting that initial interest, you need to make the home attractive and increase its curb appeal. We do this in a few ways, including:
This all makes a home more attractive to buyers and can push up the price and get the highest price possible for the seller.
When you go to price your home with your realtor, it’s really important to look at more than just what’s sold in the area. Buyer are not looking at solds—they’re looking at homes in the market at their price point.
So, if you have a budget of $800,000, what else is on the market for that price? Those houses are your competition and you can use that information to price your home accordingly. Your competition is not what was sold in the past, but what is currently on the market.
You can also cast a wide net and look at a 20-mile radius around your home. Many buyers are looking for homes in a large area, so you want to be competitive across the whole section.
Pricing can be very different from neighborhood to neighborhood and city to city. West Petaluma, for example, is so high in demand that you can get away with pricing a little high sometimes. Whereas Santa Rosa or even East Petaluma there’s more supply and less demand—prices should be less competitive. That said, I always recommend pricing at market value or even under—you can’t lose if you price that way.
There’s definitely an art of pricing a home and sometimes sellers get a number in their head. As realtors, we need to sometimes just let them test it and see what happens. But it’s always better to take advice from your realtor because they know what’s going on in the market!
When it comes to pricing a home, there are things you can control and things you can’t. There are three key areas to think about:
With these things in mind, we start working with a client by pulling an estimate from Zillow—I know they’re always looking there!—as well as estimates from Realtor.com, Redfin, and other options. I’ll bring them all to show just how different the estimates are.
I say, “Zillow says it’s worth $700,000 but Redfin says $800,000—who are you going to believe?” We can use this as a launching point to talk about the factors that go into pricing a home.
For instance, those programs use algorithms based on the square footage, but they don’t take the inside of a home and upgrades into account.
The price per square foot is usually invalid because it doesn’t include factors like a big lot, having a pool or other amenities, or the busyness of the street. So you can use it as a bit of a guide to not go too high or too low, but it doesn’t take everything into account. It’s always better to have a professional come and look at the home.
This is why I look at the competition and what’s currently on the market. If there is no competition in the area, you can test the price within reason and see what people are willing to buy. You also have to keep in mind that, unless it’s an all-cash buyer, you usually have to appraise the home, and an overpriced home won’t be appraised.
Finally, we’ll make recommendations to our sellers about what they can do to increase the price. It might be $25,000 in upgrades that will increase the value of their home by $100,000. We show them the difference so they can decide how they want to go to market.
Understanding what goes into pricing a home is important for sellers, but also for buyers who need to think about potential re-sale one day. It can be a complex process, so working with a professional who understands the market is the best way to go.
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If you want to connect with Steven, visit his website at www.cozzateam.com or contact his team directly. You can also check out their comprehensive first-time homebuyer webinar and learn details about getting into the real estate market.
If you’d like to learn about presale homes in Sonoma County, download our project brief to find out why SOMO Village might be the perfect community for you.
About Steven Cozza
Steven spent nearly a decade racing bikes professionally in Europe. As a former elite professional cyclist, Steven has the mental stamina, tenacity and brilliance to make the buying and selling process an attainable reality for his clients. Steven excels in the local market with buyers and sellers and surpasses the yearly sales average of Sonoma and Marin County Realtors. Native to the area, he is a valuable resource. With his never-give-up attitude paired with the Compass go-above-and-beyond standards, Steven gives his clients 120% of his efforts. From urban condos to countryside estates, Steven treats each property with premium marketing services and a precisely focused strategy.
Clients have shared that they chose Steven to help with their real estate needs because of his real estate knowledge, cutting-edge marketing strategies, his passion to give back to the community, and most of all, his genuine character.