There is a lot that goes into a successful fix and flip transaction. Starting from getting the property at the right price to doing the right improvements to handling the unexpected, the process is filled with ups and downs. Just when you think you have reached the finish line, it is easy to overlook the conclusion…finding a buyer.
Not only are you looking to sell the property, you want to sell it at your price and in your timeframe. Where you price has a direct impact on everything else in the transaction. Pricing too high will reduce initial demand and make the process an uphill battle. Pricing too low can leave thousands of dollars on the table. Here are five factors to consider when pricing your property.
- Recent sales. When pricing a property, it is essential to look at the data. It is easy when you have transformed a property to think about the starting point. The reality is that buyers don’t know, or care, about where the property was all they consider is where the property currently is. Additionally, they will compare your property with current sales typically over the last 45-60 days. You may not admit that these comps apply to you, but this is the data that real estate agents use. The most important comparables are location, bedroom count and square footage. A like transaction ten miles away probably isn’t the best comp to use. Ideally you will find sales within the same zip code that have the same bedroom count. It is important not to place your property on a pedestal and think it is far superior. Buyers like updates and appreciate quality but will not pay a 15-20% premium for it. Pricing your property should start with a full review of all recent sales in the market.
- Market data. Recent sales should be just a part of your market evaluation. As important as comps are, there are other factors that influence your list price. There are times when comparable sales can be a bit misleading. If there are outside factors, such as foreclosure or divorce, a seller may need to sell quickly below market value. Just one comp sale can push the market lower. It is important to read the comment section in the listing to get as much information as you can. You should also do your own independent market research. Look at items like the total number of listings in a market, the average days of each listing and where sales price averages are trending. Get an idea which way employment data is headed and if there is any news with local schools or anything that can influence tax rates. All these items can typically be found online through town hall or through the MLS if you have a good relationship with your real estate agent. Data related to the market has as big an influence on the price as almost anything work you did with the property.
- Property amenities. Every rehabber thinks their property is the best on the block. Even if this is true, it doesn’t necessarily mean you can list for top dollar. It is critical to remember that buyers don’t care about the improvements you made. They don’t care about how you completely transformed a 1600 square foot ranch with an additional bedroom and patio. All they care about is the finished product. When coming up with a price you need to consider what amenities your property has that others don’t in the market. Modern touches are nice, but they may not sell your property. Things like closet space, garages, flooring and outdoor living is what most buyers are looking for. Adding value to amenities is the great unknown for sellers. Since this part of the process is subjective it is easy to try to swing for the fences. Your best bet is to look at what has sold and what is on the market and see what the common amenity theme is and price accordingly.
- Seasonal data/time frame. You don’t need to be in real estate to have heard that it is easier to sell a home in the spring than in the dead of winter. It is no secret that buyers tend to stay put in the winter, unless they are presented with a great opportunity. This must be factored into your price. Your need to sell will also influence your price. If you have been presented with an opportunity that needs capital, you may be more inclined to list at a buyer’s number than you normally would. Conversely, if you are willing to wait the market out you would be comfortable listing at your number and seeing what happens.
- Competition. Rehabbing is much more than buying a house, making improvements and waiting for a buyer. In tight markets you will be judged on the quality of your property in relation to your competition. If you feel you did everything right and the quality is there you can push the envelope on your price. However, you would be doing yourself a disservice if you know you cut some corners and still tried shooting for the moon. Always take an honest evaluation of your property as it relates to the competition in the market before settling on a price.
The right price can help you quickly find a buyer and move onto the next property. Use these five tips to always price your property right.