1. Home

Discuss in my forum

What's the Best Way to Pick Price Ranges for a Home Search?

By

List Price to Sales Price Ratios

Picking a price range is hard to do.

© Big Stock Photo
Question: What's the Best Way to Pick Price Ranges for a Home Search?
A reader asks: "My husband and I are looking for our first home. We've narrowed down the neighborhoods we like and have been receiving email listings from our agent. Should we ask our agent to increase our price range to allow for negotiation on prices? What's the best way to pick price ranges?"
Answer: Picking the right price range is important because otherwise you could miss out on finding the right home. However, you also don't want to waste time looking at homes that don't fit your criteria because they cost more than you want to pay. The only thing worse than finding your dream home and discovering the seller won't bend on price is not finding your home at all because the price range was wrong.

Flex Your Price Point Ranges

Agents don't always think about the way buyers search for homes when they accept a listing. By not pricing a home in the right price range, sellers might lose buyers who will never see the listing.

For example, if your maximum sales price is $399,000, don't set up a property search with an upper end price point of $399,000. You will miss homes priced at $399,950, as well as those listed at $405,000.

Typical price ranges that buyers search are:

  • $275,000 to $299,000. These do not include homes listed below $274,999 or above $299,001.
  • $250,000 to $275,000. These do not include homes listed below $249,999 or above $275,001.
  • $225,000 to $250,000. These do not include homes priced below $224,999 or above $250,001
  • $200,000 to $225,000. These do not include homes priced below $199,999 or above $225,001.

You can see the dilemma. Yet many agents take listings outside of these price ranges, which might work for you. Some agents get attached to repetitive numbers and will take a listing with all twos, for example, such as $222,222. Buyers who are looking at a minimum price of $225,000 will never find that cleverly priced listing if they neglect to expand their price ranges.

Market Temperature Affects Prices

Market temperatures can be hot, cold or neutral. If you are home shopping in a seller's market, know that sellers will most likely get their asking price. In some cases, sellers will receive multiple offers, resulting in a price higher than list price. If your maximum limit is, say, $300,000, you should probably stick very close to a maximum price of $300,000.

However, if it's a buyer's market, prices are soft. This means most sellers will negotiate with you, and it leaves room for you to look at slightly higher-priced homes.

Compare History of List Price to Sales Price Ratios

Ask your real estate agent to print out the history of the past six months or more of sales activity in your targeted area. Compare the original list price to the final sales price. If the sold price is lower than the list price, how much lower is it?

Look at all the homes in that area in your price range. Figure out the average sold price ratio as compared to the average list price. For example, if the average sales prices were $315,000, but the average list prices were $329,500, the difference is 4.4%. So, if your maximum is $300,000, you could probably consider homes priced at $312,500 and submit a lower offer.

This formula works well when a lot of homes sell. With few sales, averages don't apply, but you can still figure out the discount percentages on each of those homes to arrive a reasonable ratio to use.

Figure out Seller Motivation

Don't expect a listing agent to tell you why the seller is selling. Agents who voluntarily disclose that type of information could be violating their fiduciary relationship to the seller. That's not to say that some don't squeal like no tomorrow if pressed.

Some homes sell at big discounts when you find an extremely motivated seller. These are sellers who are:

Examine Days on Market

It's not uncommon in any market for a real estate agent to take an overpriced listing. Those are typically the homes that sit on the market the longest. Consider looking at overpriced homes that have at least 90 days on market. There might be nothing wrong with them but pricing.

And they might be prime candidates for a big price reduction. If you get to them first, you can beat the competition.

At the time of writing, Elizabeth Weintraub, DRE # 00697006, is a Broker-Associate at Lyon Real Estate in Sacramento, California.

  1. About.com
  2. Home
  3. Home Buying / Selling
  4. Buying a Home
  5. Picking a Price Range - Selecting Range of Home Prices - Looking in the Right Price Ranges

©2014 About.com. All rights reserved.