What is the most important factor to consider, when selling your house?
Yes, it’s pricing the property correctly. It’s determining the absolute right price, so the house will sell! After all that’s why you listed it for sale. Right?
If you overprice your house, you risk your listing loosing freshness and appeal after the first two to three weeks of showings. Statistics prove that after 21 days on the market, a property’s demand and interest wanes.
On the other hand, pricing it too low and you leave money on the table!
Home prices are driven by supply and demand. Pricing a home correctly is a combination of art and science. Yes, experience of your agent matters. Some are better than others pricing homes at the right price!
To understand the steps taken to arrive at a fair market value, you need to know the following. After all, if your potential buyer needs financing, the lender will order an appraisal and if your house doesn’t appraise for the agreed price – the deal falls through! Do you really want to risk it?
Your Agent will Pull Comparable Listings and Sales
Your agent will look at every similar home that was or is listed in the same neighborhood over the past three months. Appraisers do not use comps (comparable properties) older than 3 months. These homes typically need to be within 1/4 to 1/2 mile from the property and cannot be in “other” areas. What this means is that homes that are within the acceptable radius, but in neighborhoods divided lines and on other side of physical barriers such as major streets, freeways or railroads, cannot be used as comparable properties.
The comparable properties must have similar square footage, within a 10% variance up or down from the subject property, if possible. If not, value adjustments are made. The same applies to similar ages, condition and location. There are guidelines an appraiser has to follow, as to how much adjustment an appraiser may make.
Your Agent will Pull History of Sold Comps
You agent will need to know the history for expired and withdrawn listings to determine whether any were taken off the market and relisted. If so, they will add those days on market to these listing time periods to arrive at an actual number of days on market. Then they should compare original list price to final sales price to determine price reductions.
It is common in a seller’s market for homes to sell for more than the list price. In a buyer’s market, it is the opposite. Adjustments also need to be made for pricing of lot size variances, configuration and amenities / upgrades.
Your Agent will Pull Withdrawn & Expired Listings
Your agent will look for patterns as to why these homes did not sell and the common factors they share. They will think about the steps to take to sell your home and prevent it from becoming an expired listing.
Your Agent will Pull Pending Sales
Your agent will review the pending sales. Although the sales prices are unknown until the transactions close; they will still attempt to call the listing agents and asking them how much the home sold for. Some will share this information. Some won’t.
Your agent will make note of the days on market, which may have a direct bearing on how long it will take before you see an offer. They will also examine the history of these listings to determine price reductions.
Your Agent will Pull Active Listings
These matter only as they compare to your listing, but bear in mind that sellers can ask whatever they want.
Your agent will tour these homes, to see what buyers will see. They should ask you to go along. It will be very eye opening for you to see what the “competition” looks like. Make note of what you like and dislike, the general feeling you get upon entering these homes. If possible, recreate those feelings of reception in your own home.
These homes are your competition. Ask yourself why a buyer would prefer your home over any of these and adjust your price accordingly.
Your Agent will Perform a Square Foot Cost Comparisons
Remember that after you receive an offer, the buyer’s lender will order an appraisal, so you will want to compare homes of similar square footage. Appraisers don’t like to deviate more than 25% and prefer to stay within 10% of net square footage computations. If your home is 2000 sq. ft., comparable homes are those sized 1800 to 2200 sq. ft.
Average square foot cost does not mean you can multiple your square footage by that number unless your home is average sized. The price per square foot rises as the size decreases and it decreases as the size increases, meaning larger homes have a smaller square foot cost and smaller homes have a larger square foot cost.
Your Agent will Perform a Market Dependent Pricing
Same house, three different prices. After they have collected all the data, the next step is to analyze the data based on market conditions. For comparison purposes, let’s say the last three comparable sales in your neighborhood were $850,000. In a buyer’s market, your sales price might allow some wiggle room for negotiation but be strong enough (near the last comparable sale) to entice a buyer to tour your home. To sell in this market, you might need to price your home at $848,500, settling for $845,000.
In a seller’s market, you might want to add 5% more to the last comparable sale. When there is little inventory and many buyers, you can ask more than the last comparable sale and likely get it. So that $850,000 home might sell at $892,500 or more.
In a balanced or neutral market, you may want to initially set your price at the last comparable sale and then adjust for the market trend. For example, if the last sale closed three months ago, but the median price has edged upwards of 1% per month, pricing at $858,500 would make sense.
Now you understand why online values are oftentimes so grossly inaccurate, and should not be relied on to estimate the value of a home you want to buy or sell!