real estate

How To Price Your Home to Sell

Every time I meet with a seller one of the main topics we discuss is how to price their real estate to maximize the sale price while minimizing the time on the market. Most people have the belief that pricing real estate a little higher than the market value will give them flexibility to negotiate when the right buyer comes along.

This is the conventional approach that most sellers take but I can show you with hard data that this approach leaves a lot of money on the table for the seller. Below I will show you how to price your real estate to put you and your family in a position of power throughout the selling process.


While this is the most common approach to selling real estate, in almost every case the sales data proves that you will get more money if you start at or slightly below the market value. Buyers are more educated than ever so they can spot an overpriced piece of real estate as they’ve probably been searching for weeks or even months online.

What happens when you start above the market value is you get some traffic but the savvy buyers don’t come to see the unit as online viewings have taken the place of first showings. For all my listings I shoot 3D walkthroughs and listing videos so buyers can get a feel for the home before they come to see it.

What happens around day 25 is the traffic to your home decreases dramatically. Why is this? Put yourself in the shoes of a buyer. They’ve been looking for months and a new property hits the market that looks like it might be the one. They rush over to see it in case it’s their new home. This is the same phenomenon with listings (just the reverse) so it’s not too surprising that about 80% of your traffic will come within the first 25 days of being on the market.

As the traffic dies down and we exhaust all our marketing channels (mailers, online advertising, reverse prospecting for buyers in the MLS, social media posts, email marketing, etc) it is time to take a price reduction to increase the traffic to the listing.

The challenge with reducing the price to the market value after it’s been on the market for a few weeks is that buyers no longer feel compelled to write a full price offer in fear of losing the property. Therefore they normally offer 5-7% below the new list price. At this point we’ve missed the opportunity to get the full market value for the property and lost most of our negotiating power. Inevitably, we will end up selling the property 1.5-3% below what we could have got if we had priced the unit at the market value from the start.

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Below is the data from the past 12 months of condo sales for 1 bedroom and 2 bedroom condos in the South Loop. In the case of the 2 bedroom condos, units that took a price reduction sold for a median price of $516,250 vs units that did not take a price reduction which sold for $537,000. That is a massive difference to your bottom line.

I also ran this for 1 bedroom units to confirm the data. The median price for the units that took a price reduction was $315,000 vs $335,000 for units with no price reduction. That’s why it is important to get the pricing right from the start.

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All this sales data doesn’t take into account the added expense of increased time on market. One bedroom units that had to take a reduction sat on the market on average for 75 days vs 39 days for units that didn’t take a price reduction. This additional 36 days cost the owners in taxes, assessments, insurance and mortgage interest. Not including the stress of their unit not selling and the inconvenience of having to show their unit more and keep their house in showing condition. The story is similar for the 2 bedroom condos which sat for an additional 74 days on average.

Pricing your home is an art and a science. It’s not easy to always hit the market on the head but by using multiple data sources (comps, price per square foot, active inventory, absorption rate, etc) we can triangulate a price range that should be acceptable to the market and should put the most money in your pocket.

I know that selling your home is stressful and my job is to get you the most money in the least amount of time. Valuing real estate is one of my strong suits since I have a quantitive background. If you have any questions about this article or pricing your home, reach out to me and we’ll set up a time to talk.


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What is a refinance and should you do it?

You may have heard people talking about refinancing their home lately. This is because interest rates just decreased again and are expected to stay low for the remainder of the year. A refinance of a loan is simply replacing your current mortgage with a new mortgage with different terms. The terms of a mortgage are usually interest rate, term of loan (number of years) and PMI (private mortgage insurance).

When rates drop you will hear a lot of talk about refinancing because it is a great way to reduce your monthly payment on your mortgage. The biggest cost on your mortgage is your interest charge. Reducing your interest rate can have a drastic impact on your monthly cost. Depending on your situation, you could also eliminate the need for PMI which is a large cost to borrowers that put down less than 20% of the purchase price. If you’ve added additional principle to your loan over time this will further increase your potential savings.

What Drives Interest Rates?

The Federal Reserves uses monetary policy to indirectly change interest rates. The Fed can tighten or loosen the amount of money in the system through buying (loosening) or selling (tightening) bonds. This is an over simplified explanation but one of the most common tools the Federal Reserve uses. As the Fed makes these changes there is either more money in the system or less. If there is more money in the system rates typically go down.

Reasons the Fed Tightens or Loosens Rates

There are many reasons that that fed may tighten or loosen rates. Below are a few reasons they change policy:

  • Economic data

    • Factors that Drive Rates UP

      • Non Farm Payrolls are higher than expected

      • Unemployment rate goes down

      • Better than expected economic data in general

    • Factors that Drive Rates Down

      • Jobs data stagnates or is in decline

      • Manufacturing is stagnant or slowing

      • Housing is weaker than expected

  • Inflationary Pressure

    • Factors that Drive Rates Up

      • Higher consumer price index

      • Higher wholesale prices

      • Hourly earnings increase

    • Factors that Drive Rates Down

      • Lower consumer prices

      • Lower wholesale prices

      • Hourly earnings decrease

Why Refinance Now?

There are a lot of reasons to consider refinancing now. There are however some reasons to consider not refinancing. Talk with your lender to see if a refinance makes sense for you.

Pros

  • Rates are currently near an all time low. If you are going to be in your home for a long time now is a great time to lock in a great long term rate.

  • Refinancing can save you anywhere from a few dollars to a few hundred dollars per month depending on how much princinple you’ve paid off and your current rate on your loan.

  • Refinancing can eliminate PMI depending on how much principle you’ve paid off and how much your home has increased in value. This can have a enormous impact on your monthly mortgage payment.

Cons

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  • Refinancing will put you back at the beginning of the interest curve. If you are making the base mortgage payment it takes about 7 years to start paying down the debt on your loan (this does not account for equity built through appreciation). If you refinance you are starting the 30 year mortgage from scratch and therefore the interest curve.

  • Refinancing extends the term of your loan (unless you choose a shorter term). Therefore, if you had planned on matching your loan term to your retirement or another life event it will extend this time.

  • Most lenders can refinance without closing costs but there may be costs associated with refinancing. You need to make sure that the math works in your favor depending on how long you plan on staying in your home.

99 W Park Avenue Unit A | 2 Bed | 2.1 Bath

This charming unit offers two bedrooms, 2.5 baths and wonderfully inviting spaces. New owners will enjoy quality fixtures and attractive finished throughout. The elegant formal dining room is perfect for entertaining, showcasing a gorgeous chandelier and large window. Every chef will love the thoughtfully planned kitchen featuring stainless steel appliances, plenty of cabinet storage, large pantry and a great gas range. Conveniently located just off the kitchen, the utility room with washer and dryer keeps laundry out of sight. A wonderful spot to relax, the living room is bright and inviting. Gather for a casual mean in the delightful dining area just off the kitchen with sliding doors which lead out to a charming patio. Venture out to sip your morning coffee in the open air. Upstairs, find a spacious loft ideal as a den, additional living, playroom or hobby space. Enjoy a peaceful night’s sleep in the beautiful master bedroom with vaulted ceiling, walk-in closet and great en-suite bath with jetted tub and dual vanities. Also enjoy a two car garage, Central A/C. Convenient location in a great community!


How to Write a Successful Real Estate Offer

The Chicago real estate market is extremely competitive. I’ve had many buyers miss out on their first and even their second offer due to the competitive nature of the marketplace. I suggest my clients follow the suggestions below to increase their likeliness of getting their offer accepted.

  1. Find the property you love.

    Most people think that they are going to find the perfect home. I hate to be the bearer of bad news but that property doesn’t exist. Instead focus on the 90% property. Throughout this process you will find constant tradeoffs. Whether it be location, size or price, you will be making some sacrifices in your next purchase. Try to build a list of must have features and keep them top of mind. Then build a list of “nice to have” features so you know what is important. If you take this approach you will be much happier with your next home and it will give you clarity throughout the process.

  2. What is the home worth?

    Once we’ve found the home we need to figure out what it is worth. We will start with comparable properties that have sold in the last 6-12 months. But comps don’t tell the whole story. Other items that factor into the value of a home include current inventory, time of year, median price/square foot, market time of the listing, and list/sold ratios for the area.

  3. Preparing the offer

    After we’ve put together a thorough market analysis, we will write up our offer. It is best to make an offer that is close to what we think the property is worth. I’ve seen too many buyers write lowball offers that end up costing them money in the end. The reason for this is that it can offend the seller and then the rest of the process becomes contentious. If the seller is offended by your offer they won’t want to work with you and every step in the process becomes a fight. I often find that you get into a nickel and dime situation during every turn of the transaction which costs you money in the long run. Remember that the purchase price is only one aspect of the transaction. You still need to negotiate the closing terms and inspection items. There are dollars to be gained or loss in those aspects too and if you start with a lowball offer you are much less likely to have any collaboration during these steps of the purchase.

  4. Pre-approval letter

    You will want to include your pre-approval letter with your offer to validate that you are a legitimate buyer. I always recommend you work with the right lender for your situation. I normally recommend either Guaranteed Rate or Wintrust since they both have local underwriters who know the unique aspects of the Chicago real estate market and can be available if and when we hit a snag in financing.

  5. Letter to the sellers

    I recommend all my clients write a letter to the sellers introducing themselves. This helps differentiate you from other buyers and helps humanize the process. I’ve had multiple offer situations where sellers took our offer which was lower than the competition because they connected with the new buyers through this letter. It’s an extra step but I believe it is a competitive advantage in the end.