Luxury homes have an even higher standard when it comes to getting sold since the marketplace of buyers is already smaller than it is for non-luxury homes. With fewer buyers that means luxury home sellers need to be on top of their game when it comes to presenting the home for sale. Pricing is one of the crucial aspects of selling any real estate. Generally being higher priced means a luxury home will spend a little more time on the market due to the limited pool of buyers. By overpricing the luxury home that time can be even extended further which will make it all that much harder to find a buyer.
Why Pricing Matters
Whether a home buyer is looking to buy an entry-level home or buy a fully equipped luxury home the price matters. No home buyer wants to spend more money than they have too since the money they save on a home can be put to better use like furnishing a home, adding upgrades or features they really want in a home. Value matters to home buyers and just because a homeowner values their own home higher because of emotions attached or because they think they can get dollar for dollar increase in price based on what they paid for upgrades does not mean the buyers will agree. To home buyers homes are interchangeable and there are multiple homes to choose from. Just because a home has many great features and updates does not mean home buyers will overpay since other homes which have similar features and are not overpriced will be just as desirable.
Especially in the luxury class of homes, buyers have the money to make updates when needed and therefore buying a home that needs some TLC will make more sense than buying a home that is overpriced because it already has everything. With the home needing TLC the luxury home buyer can spend what they want to bring the condition up to the level they desire and get to choose the features and finishes they add. This is one of the many reasons premium pricing does not work for homes that are very interchangeable.
Pricing needs to be fine-tuned within the first two to three weeks of the home being listed on the market. Due to being a luxury home, and the fact there may not be many similar homes available for sale, the pricing number may not be as easily determined. Therefore by starting off with a reasonable number and paying attention to home buyer feedback, the homeowner should adjust their pricing earlier rather than later. The longer a home sits on the market without any offers due to high pricing the greater the chance will be that most buyers think there is something wrong with the house and will avoid it in general. The net long term effect will require the homeowner to drop the price steeper in order to get any interest.
How Not To Price Your Luxury Home
Setting a price based on how much you paid for a home, or how much you paid plus adding in the costs of updates you made on the home are sure-fire ways to get the price wrong. Real estate prices move in cycles and if you happened to buy when prices were high that does not mean buyers will be willing to pay those same prices today. On the other side if you bought when prices are low and now prices have gone up most sellers will not want to price their home for what they bought it if they can get more today with a higher market. So a luxury home must be priced according to the market conditions that are in effect at the time of listing.
While home updates and upgrades do help add value to the home the price should not be based on how much money was spent on those updates. Certain unique updates, in fact, can hurt the value of a home since most buyers are not looking for that unique one of a kind feature and many may not want it. Additionally, if a home was outdated and updates were made to bring it up to modern standards that means the value was brought into current line with homes of a similar nature today. Adding on the costs of those updates to the selling price of the home only makes sense if other comparable homes are priced in the same range and have the same features and amenities.
When selling a luxury home other homes on the market are direct competition and so a home priced higher is at an immediate disadvantage. The longer a home sits on the market compared to other similar homes the more likely buyers will think something is wrong with it and choose to ignore it. As a result in order to get a home with a long time on the market sold deep price cuts will be needed to attract buyers. Proper pricing, therefore, sets homeowners up for success so long as they keep a flexible approach and are ready to adjust their sales price as the buyers dictate.
How A Luxury Home Should Be Priced
Local luxury home real estate agents must be expert marketers and expert in knowing about the real estate in their particular location which includes pricing knowledge. The price of a particular home can vary greatly based mainly on the location with everything else being equal. The agent who knows and sells luxury real estate, therefore, should be familiar with their local market and know about past sales of luxury homes. Past sales along with homes currently on the market for sale represent a good data source that agents use to help determine the price of a luxury home that is about to go on sale. Agents will use sources such as the multiple listing service (MLS) and local county sales records to see what price certain luxury homes have sold for.
Knowing the price a home sold for is not enough and good real estate agents know they need to take into account how does the current home compare in terms of features and condition. A home that is worn down and not up to date in terms of finishes and fixtures would not be priced the same as a home that has been updated with the latest finishes. Homes with different bathroom count and different bedroom count also add to the variation real estate agents must account for. If a home is equal to another home in almost every matter except for having one more bedroom and bathroom that is easier to take account of in terms of price adjustment. In that type of situation using price per square foot may make sense.
For most other situations price per square footage in and of itself does not make sense and expert real estate agents rarely rely on just pricing a home based on price per square footage since things like home conditions, amenities, and the like cannot be accounted for under the square footage method. Agents generally also will not be exclusively relying on things like Zestimates or other computer generated numbers since their accuracy without other real local data to back it up can be lacking.
Bottom Line
Selling a luxury home involves marketing the home to a limited pool of savvy home buyers. Those home buyers know the value of their money and will not be willing to overspend on a home that is not worth it. Luxury homeowners would be wise to price their home based on actual market value in order to make sure they sell the home.
Get a FREE Comparative Market Analysis to see what your home is worth!
Images on this page are all from a luxury home in Scottsdale Arizona on the 3rd Fairway of Mirabel Country Club. As of this writing, the home is listed for sale by Platinum Realty Network. More Information Here.
Written by Paul Sian with United Real Estate Home Connections, a real estate agent who specializes in luxury and investment real estate in Cincinnati, Ohio.
Luke Skar is a 17+ year veteran to the mortgage industry. He strives to stay up to date with the latest changes and trends in mortgage lending as well as real estate. Through his blogs, websites and social media accounts, his goal is to help the community with as much factual knowledge as possible that helps all parties in real estate transactions.
