In this cooling market, sellers have to find the pricing sweet spot and work harder to reel in a buyer, who has more homes to choose from and more bargaining clout. By Pat Mertz Esswein, Associate Editor July 5, 2006 First the good news for those of you trying to sell a house: Home prices across the nation still are rising, on average, despite a cooling real estate market. Now the bad news. Home sales in May were the weakest they've been in four months and the number of homes on the market hit a record 3.6 million, according to the National Association of Realtors. Translation: Houses are sitting on the market longer. So if you don't want a "For Sale" sign hanging in your yard for months -- even a year -- you've got to set the right price on your home. RELATED LINKS What's Ahead for Housing? Apartment Rents Are on the Rise The High Price of Office Space To do this, you should combine an objective evaluation of your property with a realistic assessment of market conditions. In any market, you're more likely to benefit by determining a fair value and sticking close to it than you are by asking an unrealistic figure and waiting for buyer response to sift out the "right" price. And in a buyer's market, setting the right price from the outset may be your only effective strategy. Sellers: Price it right Prepare for bargaining. You could set a fair price and then refuse to bargain. But that would deter all those people who hate to pay full price for anything and like to feel they're "getting a deal." Better to leave a little room for negotiation by asking slightly more than you expect to get, say, 5% to 10% above appraised value. If sales are brisk in your area, you might just end up getting top dollar. Advertisement Overpricing can cost you. Many sellers don't realize that overpricing can result in their getting less for their house than if they priced it right initially. The reason: Knowledgeable agents and buyers often won't bid on a severely overpriced house. By the time the seller wises up, many of his best prospects already will have bought other houses. An overpriced house can end up being sold for less than it would have a few months earlier. Some sellers who don't have a deadline for selling will cling for a long time to their overly high asking price. They probably won't get it, and even if they do manage to sell a year later for the original price, it will be because a rising market finally caught up with their price. They may think that they were smart to hold firm, but in fact, they were naiuml;ve, ignoring the time value of money. In the year (or even six months) that they clung to their high price, the rest of the real estate market probably wasn't standing still. The next home they buy may have gone up in value by at least the same margin and possibly more. And if interest rates are rising, their mortgage may cost more. Even if they don't buy a replacement home, they have lost the earnings they would have received on the invested proceeds of an earlier sale -- say, 5% per year if conservatively invested and possibly much more if the money were invested in tax-free bonds or a rising stock market. Consider the agent's motivation. If a competing agent suggests that you list your home for an amount that sounds too good to be true, it probably is. He or she may just be trying to get the listing, knowing that after the house sits on the market for awhile, the agent will suggest a new, lower price more in line with what other agents suggested in the first place. Advertisement Conversely, underpricing can deprive you of money that's rightfully yours. Unless you are in a big hurry, aim for full market value. Avoid overeager or unethical agents who suggest a price that will assure them a quick and easy sale -- one that won't require an investment of time, effort, or money on their part. Study the comparables. To price your home right, shop your competition. To be comparable, a house that sold has to be close to yours in age, style, size, condition and location. Try to find at least three homes (comparables) that have sold within the last six months. The more current they are, the better. You need to know: How long did each one take to sell? How much of a spread was there between the original asking price and the actual selling price in each case? Is that the normal differential? Has anything occurred to warrant setting a higher margin? Get an appraisal. If your idea of what your property is worth and the listing broker's recommendation don't coincide, an appraisal may be in order. An appraisal is an especially good idea if you are attempting to sell your home yourself. The $250 to $500 it will cost is money well spent. An appraisal prepared by an experienced, licensed professional comes as close to an objective evaluation as you can get. Buyers: Make the most of the market Once you've taken the necessary steps to prepare for house-hunting -- assessing your resources, getting preapproval of a mortgage, defining your needs and wants -- you're ready for serious house hunting. Adapt your strategy to the mood and economic realities in your targeted location and price range. Advertisement Time your purchase. The housing market usually depends on the economy -- local, regional and national. But within the best and worst markets, there are recurring seasonal differences. Try to shop when other buyers aren't out in force. Generally, more sellers will be eager to sell when the late-summer doldrums hit. September, October and November generally usher in a brisker pace. But from Thanksgiving through the winter, holiday activities and cold weather combine to slow activity. Buyers should find sellers more interested in dealing -- an advantage offset by fewer houses to look at. Naturally the seasonal ebb and flow of market activity varies. Ski areas and beach resorts have their own market cycles, as do other specialized markets and different climatic regions. Learn the local pattern, and, if possible, use it to your advantage. Make the most of a buyer's market. In a buyer's market, there are lots of houses for sale relative to the number of serious lookers. Houses sit on the market, and sellers often cut asking prices and even assist buyers with cut-rate financing. When things are cold for sellers, time is on your side: Advertisement You can spend more time checking out comparable properties. You can be more deliberate and drive a harder bargain. You can get a house appraised before you submit an offer and ask the seller to pay all or part of the cost. You can even load your offer with contingency clauses that help you -- inspection, financing at a specified interest rate, seller's help with mortgage points [or other closing costs], even the condition that you be able to sell your current home before closing on this purchase -- and still get it accepted. Scope out the sellers. Find out as much as possible about the sellers, starting with the first visit. Everything you learn will make you a better informed, and therefore more capable, negotiator should you decide to make an offer. Seller motivation will determine how the house is priced to sell in the first place and how receptive to price cutting the seller may be later. But the seller, and the seller's agent and subagents, may be coy or less than candid because everything you learn will make you a tougher adversary in the negotiation that follows. If you can, talk with the seller's neighbors in a non-threatening way that doesn't invade their personal privacy. You might ask whether any houses have been sold in the neighborhood recently, and so forth. Then, try to steer the conversation toward the sellers and the house you want to buy. Try to ferret out answers to these questions: Are the sellers truly "motivated," as the agents say, or are they just trying to find out how much they could get for their house? Are they scheduled to go to settlement on a new house? Why are they selling? How long have the sellers lived here? Public land records will tell you this and how much they paid for the house. When do they want to settle? Do the sellers need to stay in the house after settlement? If yes, for how long? Would they consider helping you with the purchase, perhaps by paying closing costs? Establish your priorities. Price is always important, but it may or may not be the primary factor. Rank the elements of a deal according to your own wants and needs: price, financing, date of possession, extras. Put your priorities down on paper and keep them to yourself. They will be an important tool in evaluating any counteroffer you receive from the seller. Consider how you might accommodate the seller -- at the right price. For example, suppose the owner doesn't want to repaint before moving. What price reduction or added feature would make that hassle tolerable for you? Excerpted from eighth edition of Kiplinger's Buying and Selling a Home: Make the Right Choice in Any Market (Kaplan Publishing, 2006).