One of the most important aspects of a listing, without a doubt, is pricing. Price too low and you leave money on the table. Price too high and you could dissuade prospective purchasers from making offers and end up with less than the property is worth.
Use an online pricing tool, and you could be surprised to find that it may not even fall within 20% of an accurate sales price.
So, what is the science (or art) of pricing? You'll certainly want to consider the following:
- Building Stack - The most accurate comp will be the $/SF of a recent sale within your apartment's stack (the same layout within your building on a different floor), adjusting for floor (generally 1% - 3% per floor), location and timing.
- Building Comps - If you can't find an identical apartment, the $/SF of the most recent sale within your building will be a good indicator of the market. In order of strength, In Contract, Sold and Active listings are the closest comps, respectively.
- Neighborhood Comps - Once you've exhausted your building comps, you'll also want to take into account your neighborhood comps. Run an search to gather all In Contract, Sold, and Active listings and then review each listing individually to compare the characteristics of each listing to yours. Come up with a list of properties that are similar to yours in each category and start to come up with $/FT averages to build your pricing model.
- Pricing Model (illustrated below) - Build a pricing model that includes all of the $/SF categories within your neighborhood and building as well as other relevant buildings to determine pricing.
- Calculate your Absorption Rate or Supply Quotient - This is just another way of calculating supply and demand. The Absorption Rate is calculated by dividing the number of apartment sales in a given month by the number of apartments on the market. It is the inverse of months of your Supply Quotient. The higher the Absorption Rate, the more demand, and the more flexibility you may have in pricing higher. If you're in a slow market, you might want to consider pricing lower for a quicker sale.
- Adjust - Just as every apartment is unique, you'll want to adjustment pricing to account for what is unique about yours. Just keep in mind the premium that you place on some aspects of an apartment may not be universal.
Ultimately, the market dictates what a property is worth, but accurate pricing will ensure that you attract the greatest number of viable purchasers, resulting in the greatest likelihood of getting the highest price in the shortest amount of time.
You should also note, that if you are selling a property with a renter in place, you'll have to calculate your Cap Rate as a metric for other potential investors.
Of course, there is no substitution for having a pricing expert provide a fair valuation. If you have any questions regarding pricing models or would like an in-depth valuation, contact us.