Study Liquidity When Deciding How To Price Your Home

If you have had your home on the market for a while and have been told to "lower it," do you even know how to accurately price your home so that it sells?

Do you just lop off 5 to 10 percent, or is there a more "scientific" way to determine a home's value that will attract the kind of buyer frenzy that is required to sell a home today?

Well, the answer to this one is rather simple.

Use Liquidity To Price Your Home

When I refer to using real estate liquidity to price your home, I am referring to a study of the demand in your market so that you can sell your home for a great price now.

To do this, you first have to classify your home. While I suspect every market has some unique classifications, you generally want to generalize your home by the features that buyers most desire. For a house in Tallahassee, the classic features are location, school zones, bedrooms, bathrooms, amenities, size, etc.

Then, you break the market down into segments based upon location and value to determine how many buyers really exist for your home.

In the table above, we list the inventory of homes for sale in Tallahassee. As an example, the table shows that there are 201 homes for sale in NE Tallahassee that are priced from \$300,000 to \$500,000.

Now that we have identified the supply, we can look at demand.

The table above shows the average monthly demand for homes in Tallahassee, based upon the previous 12 months sales. Currently, there are roughly 17 buyers in the market each month for homes priced between \$300,000 and \$500,000.

When we divide the supply by the current rate of demand, we find that there is nearly 1 year's supply of homes. That is double the amount that you would find in a balanced market, and a home seller in this price range would need to be one of the 17 best out of the 201 if he wanted to have a serious chance of selling a home next month.

These 17 buyers per month represent the liquidity in the market. If you think you have your home priced correctly, I would think a sale every other day (17 per month) is enough liquidity to offer all the feedback that you need to validate your home pricing strategy within 2 to 4 weeks.

For example, if you price your home at \$350,000 and put it in the Tallahassee MLS, you should expect 17 or more showings in a month. If you are priced at the market, an offer should follow. If you are priced below the market, multiple offers could occur.

But if you receive few showings and no offers, even though 17 people were buying a home like yours, I believe there is ample liquidity in the market "telling you" that you have to reduce your price.

Your real estate agent will be able to interpret the showings and feedback to guide you to price your home for success after this time frame.

When it comes time to price your home, you need to put aside all of your "insight" about the home. Buyers won't have your feelings for the home, but they will be comparing it to all the others that are for sale.

They won't care about the events your family enjoyed there, and they will not care about the improvements that you made, as these are not elements of a home's value.

They will only care about how your home compares with what else they can buy, on the day that they make their home selection.

It really is that simple.