Ever wonder how to sell your house for more money?
With real estate values rising in major cities across the developed world, buying, selling, and investing in property is topical, if not downright profitable.
But what actually works when selling a property? How do you sell your house for more?
It seems that much of real estate advice is more “generally accepted wisdom” rather than evidence-backed strategy.
Take for example the old adage in real estate that you often hear real estate agents tell clients – “your first offer is your best offer”.
If it’s good advice agents would practice it right?
So what did economists find when they compared the sales of homes that belonged to the real estate agents themselves, to those of homes belonging to the real estate agent’s clients?
Real estate agents kept their own houses on the market longer then their clients, and ended up getting tens of thousands more dollars for themselves.
Using the data from the sales of those 100,000 Chicago homes, and controlling for any number of variables—location, age and quality of the house, aesthetics, and so on—it turns out that a real-estate agent keeps her own home on the market an average of ten days longer and sells it for an extra 3-plus percent, or $10,000 on a $300,000 house.
When she sells her own house, an agent holds out for the best offer; when she sells yours, she pushes you to take the first.
As the economists pointed out, when you consider the agent’s commission structure, the result is actually not that surprising.
The problem is that the agent only stands to personally gain an additional $150 by selling your house for $10,000 more, which isn’t much reward for a lot of extra work.
Wondering what other selling secrets might be hidden in the data?
Here’s what they didn’t tell you, but research says can help to sell your house for more.
Sell Your House For More
1) Go High
When selling a property it’s not uncommon to be advised to set an “attractive price” (read: a lower price than you want).
The idea is that a lower price will attract more buyers and the agent can then work on the buyers to “build up” their price expectations.
Low start price = more interest = higher end price. Makes sense. Good strategy right?
This study found that an underpricing strategy resulted in a lower than expected sale price at auction, even when it attracted more buyers.
The results with respect to the sellers’ list price strategy show that while an increased underprice – a low list price in relation to assessed market value – increases competition by attracting more bidders, this competition is not enough to increase the selling price… it has a negative effect on sales prices.
How can that be?
The most likely explanation is what psychologists call “the anchoring effect“.
Psychologists have long known that the initial price you ask acts has a kind of “anchor” for buyers’ expectations.
And research shows the effect of anchoring is hard to avoid.
So what price should you set?
Research by economists shows that sellers that set higher asking prices for their properties get higher sale prices.
An owner of a property with a high loan-to-value ratio sets a higher asking price, has a higher expected time on the market and, if he sells, receives a higher price than an owner with proportionately less debt
But hold on, won’t that higher price be negated by the longer time on market?
2) Longer = Better?
Setting higher asking prices go hand-in-hand with a house remaining on the market longer.
So is the longer time on the market actually worth the extra price return? The data says highly likely.
We’ve already seen that real estate agents keep their houses on the market longer and get higher prices.
They know what they’re doing.
The study found that an agent keeps her own house on the market an average ten extra days, waiting for a better offer, and sells it for over 3 percent more than your house
An extra 3 percent for just 10 days is a pretty spectacular return.
Other studies by economists have found that higher prices cost an extra 10 weeks on the market, with a 4 percent higher price. A 20 percent annualized rate of return.
Nothing to be sniffed at either.
The higher reservation prices costs low-equity sellers about ten extra weeks on the market, but yields a 4-percent higher price. These numbers translate to an annualized rate of return exceeding 20 percent, suggesting that unconstrained sellers are willing to give up a significant amount in price in order to achieve a quick sale.
Obviously your holding costs and risk tolerance come into this equation. But it’s an equation worth doing.
Okay, so that’s price and time. What else can help sell your house for more?
3) Words Count
We all love pictures.
And if you’re getting good advice you’ll pay attention to getting quality photos.
And a study by Trulia.com suggests the more photos the better.
Our study shows that listings with more than 6 pictures are twice as likely to be viewed by buyers as listings that had fewer than 6 pictures.
But how much attention are you paying to the descriptive words in your marketing?
Research by US real estate media company Zillow.com shows that certain words in real estate marketing are associated with higher and lower house prices.
Bottom-tier homes described as luxurious tend to beat their expected sale price by a whopping 8.2 percent
Top-tier listings described as “captivating” sold for 6.5 percent more on average than expected.
What words are associated with selling your house for more?
Here’s the word clouds from Zillow.com
image source: zillow.com
So am I suggesting you can describe your dump as a luxurious palace and expect a better price?
The point here is not to under-sell good features with poorly worded advertising.
If some words are associated with higher prices, does it work the other way? Do some words correlate with a lower price?
Low-priced listings described as an “investment” sold for 6.6 percent less on average than expected.
And data shows top-tier listings with the word “investor” sold for 6.6 percent less on average than expected.
In fact, even bland words like “nice” are can potentially harm prices.
low- and mid-priced listings with the word “nice” sold for about 1 percent less on average than expected.
Time to re-think that advertising blurb?
Wondering what words to avoid if you want to sell your house for more?
Here’s another word cloud from Zillow.com that might help:
image source: zillow.com
So using the right sexy words help sell your house for more. But what about a sexy agent?
4) Sexy Sellers Sell
Yep. you guessed it. We humans are indeed that shallow.
Research shows that physically attractive agents have higher listing prices, and consequently they get higher sale prices.
A recent study of physical attractiveness and how it impacts real estate brokers’ pay and productivity shows that the more attractive the real estate agent, the higher the listing price of the home for sale. Those higher listings lead to higher sales prices, meaning that beauty enhances an agent’s wage, said the report by Frank Mixon, professor of economics at Columbus State University’s Turner College of Business.
Okay, so it’s more to do with the higher listing price (see the first tip) than the chiselled chin or captivating curves of your agent per se. But if you’re looking to stack the deck in your favour…
Okay. So we’ve covered the marketing side. How about the selling method?
Auctions, PBN, BEO, tender. Does it matter? Absolutely.
5) Auctions Achieve (Usually)
Is there a selling method that research suggests is best? Well, it depends.
Studies suggest the auction (aka English auction) gets higher prices than negotiated sales in up markets.
our results show that sellers obtain a higher expected selling price if they auction off their property in an up market…Holding other factors constant, auction sales are on average 5.7% higher than negotiated sale.
The middle-priced property segment has the highest auction premium at 5.7%, while the high-end property segment has the lowest auction premium at 4.3%.
What about auctions versus tenders?
According to research from Singaporean government land sales, auctions beat first-price sealed-bid tenders by around 4 percent.
The evidence indicates that using the sealed-bid tender results in a lower land price, approximately 4% lower than English open auction.
But a word of caution: an auction may not be the best choice in a weak or flat market.
In a down market, auction sales are on average 1.9% lower than negotiated sales. Generally, when the market is unstable, either heading for a boom or a bust, the results indicate that auction sales will benefit sellers of low-end properties more than sellers of high-end properties
So if you are considering an auction, is there anything you can do to get more money out of your auction?
6) Hack Your Auction
When it comes to auctions, it’s a case of “the more the merrier”.
For the seller that is.
Research suggests that going from 1 bidder to 2 bidders in an auction can increase the final price by roughly 4 percent.
The effect of the number of bidders is also strongly economically significant. Starting at one bidder, the increase in price when adding one more bidder is 3.9 percent and the corresponding increase when going from five to six bidders is 1.9 percent…
As a further illustration, increasing the number of bidders for an average apartment from one to six, the expected selling price increases by 14 percent.
Of course, as we’ve already seen, underpricing to increase bidders doesn’t have this effect.
And until cloning technology improves, there’s no easy way to magically increase the number of bidders at your auction.
So, is there anything else we can do to make an auction go further?
Talk to your auctioneer. Fast talker?
Fast auctions generate higher prices.
A fast auction in terms of a short average time between bids seems to increase the probability of a bidding frenzy, which, in turn, increases the number of bidders and selling price.
The bid speed might be a little out of the auctioneers hands. So what can they control?
And the same study revealed that higher bid increments generate higher sale prices than smaller increments.
Increased bid increments reduce competition, however not enough to offset an increase in selling price.
So there’s what the research says can help to sell your house for more.
Is it iron-clad financial advice? No.
Obviously there are a lot of different variables that go into selling a home.
But as a property investor with 20 years of experience, it’s always enlightening to get beyond the entertaining stories and accepted wisdom to see what the data reveal about how to sell your house for more.
So get out there and sell your house for more!