Pricing the Home

Considerations In Setting the Asking Price

As described in Chapter 2, pricing is one of the “four Ps” of marketing. Ideally, you will think carefully about this before you invest any money in developing the home or marketing it. These are some of the considerations in setting the asking price.

  1. Goal: Is your main goal to provide housing that is affordable to a certain income group, or to rebuild the market in your target area? How much can you “lead” the market if you are trying to improve housing values and create stronger comparables for the next properties you develop? If your goal is affordability, what is your target income group and what is the price range they can afford? If you are trying to accomplish both goals, how can you subsidize the cost of the home to the low-income buyer with the least repercussion on surrounding housing values?
  2. Cost: What is the range of costs in your community for land or property acquisition, soft costs, rehab or new construction, developer fee, marketing and sales? For how long and how much should you budget carrying costs if the property does not sell right away? Will there be financing costs?
  3. Market: What is the range of prices in your target neighborhood right now? The range of appraised values? What is the trend? Will values drop even further by the time you complete the property? Are there price points and housing type demand that are not met well in your market (which may be higher than the median price in your target area right now)?
  4. Funder or Lender Restrictions: Is there a funder who is providing a subsidy for the housing that imposes restrictions on how you can price the home? Will the lender(s) making the first or second mortgage allow the total loan-to-value ratio to exceed a certain percentage of appraised value, whether or not their portion of the financing exceeds it?
  5. State or Local Ordinances: Is there a state or local ordinance that requires a percentage of new housing to meet an affordability standard, and is your housing being developed to meet that goal?

Pricing High and Pricing Low

In a competitive, buyers’ market, it probably will not serve you well to overprice your property in the hope of getting your ideal price through lower offers. Many real estate professionals believe if you don’t come to market at the right price you will lose the freshness of the home's appeal after the first two to three weeks of showings, and that interest wanes after three weeks on the market.

There are varying opinions on pricing the property low: on the one hand, a home priced below market value may receive multiple offers, which will then drive up the price to market; on the other hand, a below-market price may further depress values in an area where you are trying to improve them.

This is another case in which a real estate agent experienced in your market segment can be very helpful. Today’s market is still unsettled in many places, and it will take experience and the sixth sense that comes with it to price property correctly every time.