There are many things that can make a huge difference when rehabbing a property. One of the most important steps that is often glazed over is how you price your property. At this point, you are at the finish line. However, you are not done by any means. You still have to sell the property, and this is where things can get tricky. You need to price your property right for it to sell at the point you intend. It is not an exaggeration to say that this can make all the difference in your bottom line. There are typically three pricing strategies most people use in today’s investing landscape. They are all very different, and can yield very different results.
1. Pricing above the market: Many housing markets have steadily rebounded over the past couple of years. This has led to an increase in sellers and rising home prices. Arguably the biggest mistake you can make with any rehab is to list it above the market value. Any time you are directly involved with a property, there is an inclination to think it is more valuable than it really is. Buyers do not care about what condition the house was in before you started working on it. They care about how it is presented and how it stacks up to the rest of the area. As much as your market may have rebounded, you still are not in a position to name your price. Long gone are the days where you can list above the market and have multiple offers in a matter of weeks. Pricing too high will not land you an end sales price above market value. In fact, you could do permanent damage to your property. First impressions mean a lot to both buyers and realtors. A property that is listed too high will be dismissed right off the bat. Instead of having buyers show up and kick the tires, they will completely ignore the property. After a few weeks, you will be forced to lower the price or entertain lowball offers. Even if you do reduce the price, there is no guarantee that the buyers, who may have had interest, will even come back. Unless your local market is red hot, pricing too high can completely ruin all the good work you may have done.
2. Pricing too low: There are two main reasons why you would implore this strategy. The first is because you are looking to generate interest and need to close as quickly as possible. The second is that you completely misread the market. Neither of these is a viable excuse. Pricing below the true market value will not only leave money on the table, but it may impact the type of buyers you attract. Real investors know the difference between a good deal and a property that needs to be sold quickly. If you list just below the market, but not low enough to attract fellow investors, you will get lowball offers. Buyers will smell blood and sense desperation. Instead of receiving fair offers at market value, you will get cash offers with quick closings. Some of these may be tempting, but they will still leave money on the table. Unless there is an unexpected circumstance during the rehab process, you should never be put in a situation where you need to sell quickly. You will end up spending months on a deal that won’t give you the return worth your time and effort. You and your realtor should examine every recent sale or current listing in your area. You should be able to come up with a list price that is in line with your market and not below it.
3. Pricing right: As you can probably imagine, this is the best pricing strategy to entertain. Pricing right will not only help maximize profits, but it will give you the best chance at a quick sale. Anytime you list a property, your goal is to create as much demand as possible. The right price will generate that demand. The best deals are when both sides walk away happy. By creating interest and demand, you could create a bidding war. Two parties that see value in something will often overpay for it. This will often lead to multiple offers coming in above the asking price. Because you listed the property at the right price, you will end up walking away with more than you thought. Even if you end up closing at your asking price, you will have the chance to choose between offers and accepts the terms and criteria that are best for you. The best way to get to your list price in most cases is by listening to your real estate agent. They do not have the time, emotional or financial commitment that you do and can give you an unbiased analysis. By trusting your realtor and the data they present, it will be difficult for buyers or other realtors to challenge your number.
Squeezing out a few extra thousand dollars in profit on a few deals a year can equal a big return. Conversely, losing money by pricing wrong on those deals will have an equal negative impact. Don’t waste time rehabbing your property perfectly and then pricing it above or below the true market value. Pricing right can make all the difference.