We are a couple of weeks away from putting our second house on the market. The first is a wholesale flip while the second was a major rehab which we put $19k into. My wife and I are in opposite corners on how to price a house. She follows the market very closely and observes that people routinely drop their prices after a few months on the market. Somehow she is certain that no one is getting the initial list price. So she thinks that it is important to set the initial price high so that there is room to drop the price later. This is obviously the way to get the maximum price for the house, since you won't leave any money on the table by setting an initial price that is too low.
I would like to set the initial price at a level that is slightly below what I think market value is in order to move the house quickly. After 3 months on the market we have not sold our "wholesale flip" because I believe it is priced too high to be a wholesale flip. Since we bought it for $5k cash the holding costs are not an issue so I am not willing to argue the point on that house. On the other hand there are lots of holding costs associated with our Cheektowaga house - $1780/month in payments. Six months on the market can eat away profits pretty quickly if we price it wrong. That's OK if you are living in the house and need to make a mortgage payment anyway but difficult for a vacant house.
So what's the best way to set the price? If there is lots of market data it is pretty straightforward, but getting comparables is more difficult than you might think. Only 2 houses have sold in the Cheektowaga house neighborhood during the past 2 years that are similar in size to ours. If you choose wrong the bargain hunters will be out after 6 months trying to low ball you, after you've already dropped the price. We initially set the price of our wholesale Buffalo house at $25k and dropped it to $22.9k. We've had a verbal offer of $17k which we agreed to, but have not gotten a written contract yet. We may end up going lower before we sell.
The Cheektowaga house would sell for $115/ sq ft in the town I live in but probably less than $80/ sq ft where it is located. The 2 comparables I have are less than $65/ sq ft but some smaller houses have sold for $75/sq ft. The most difficult cost for home buyers to swallow will be the $8k per year property taxes. We need to get $73/ sq ft to make our $20K profit goal.
Before we list the house we are planning an open house "for sale by owner". I hope to get feedback on the price from that to help us price the house when we list on the MLS.