When sellers and their agent are determining at what price to list their home for sale, it is important to remain realistic about the market and the home's current market value.
Price your home too high and buyers and their agents will probably ignore your home, or use it to sell other, better-priced homes. If the home does sell at too high of a price, then it may not make it through the appraisal phase of the contract. If the home cannot appraise at the purchase price, then the buyers may not be able to obtain financing. Assuming there is an appraisal contingency in the purchase contract, this leaves the buyers three options:
Negotiate with the seller down to the appraised value
Pay the difference in cash at closing between the appraised value and the purchase price, creating immediate negative equity in their home
Cancel the contract.
Most buyers, except in an extremely tight and competitive market, will opt for options 1 or 3 above. Thus, a too-high price does nothing for the sellers.
Price your home too low and you risk leaving money on the table. No one wants to lose any money!
Work with your REALTOR to determine the correct list price for your home in your current market. Price your home for that current market - not yesterday's or last month's market, and not what you believe tomorrow's market may be like. Review comparable sales with your REALTOR - ideally, these will be home sales that have closed in the previous 3 months, within a 1/2 to 1-mile radius of your home. (Some exceptions may be made for this, but generally speaking, appraisers want to use comparable sales in your town, within a 1 mile radius of the home, sale closed within 6-12 months at most, and within a 20% differential for gross living area or square footage)
In general, the following applies when determining which comparable sales you, your listing agent and any appraiser will utilize:
Homes should be of similar age. If your home is 40 years old, you cannot use the new construction homes just completed up the street as comparable sales.
Homes should have square footage within 20% of your home. If your home has 2,000 square feet of gross living area, you cannot use your neighbor's 3,000 square foot home that just sold as a comparable sale.
Homes must have sold. You cannot use your neighbor's recent appraisal for a mortgage refinance as a comparable sale, even though their home may be the same model as yours.
In most cases, your basement is not included in the square footage of the home, even if it is fully finished. (this may differ in some localities and for some home styles)
Keep these issues in mind and work with your REALTOR to determine the best list price that will result in the best sale price and terms for you.