Factors Affecting the Appropriate List Price
When it comes to selling your home, the most important factor is to price it correctly. You don't want to overprice the property because the home's appeal will have faded after the first two to three weeks of showings. After about 21 days, demand and interest begin to wane. Of course, nothing prevents you from lowering your price later, but this can be a case of too little, too late. A comparative market analysis (CMA) will help you get as close to market value as possible.Important Points to Remember
- Pricing your home too high can be a mistake, but pricing it too low will almost certainly result in multiple offers over the asking price.
- To determine market value, use a comparative market analysis (CMA) and comparable home sales in your area.
- If you need more information, talk to your real estate agent or use the Federal Housing Finance Agency's house price calculator.
The Pricing Conundrum
While pricing your home too high can be a mistake, don't be concerned about pricing it too low. Multiple offers on properties priced below market value are common, causing the price to rise to the market level. 1 It's all about supply and demand when it comes to pricing. It's worth noting that no two agents set the same price for the same property. Some agents are far superior to others when it comes to determining how to price your home. You can get a CMA prepared by most agents, but you can also do it yourself.Compare Listings Using the CMA
First, look at every comparable home that has been listed in your neighborhood in the last six months. Appraisers don't use comps older than three months, so you'll want to narrow the time frame even further. You'll want to get as close as possible to the final appraised value of your home. Unless there are only a few comparable homes in the area or the property is rural, the homes should be limited to those within a 1/2-mile radius of yours.Details That Are Frequently Overlooked
When comparing homes, it's easy to overlook some minor details: Keep an eye out for neighborhood dividing lines and physical barriers like major roads, freeways, and railroads. Don't make inventory comparisons from the "wrong side of the tracks." Note that identical homes directly across the street in some neighborhoods can differ by as much as $100,000. Desirability perceptions are valuable. If possible, compare similar square footage within a 10% range up or down. Make a comparison between people of similar ages. One ring of construction from the 1980s could be right next to another ring of construction from the 1950s. The two will have different values. Make sure you're comparing apples to apples in your comparisons. Assess desirability honestly. If you're lucky enough to own a dream home that will make buyers faint upon entering, you might be able to get away with charging a premium.Check Out Comps That Have Been Sold
To determine any price reductions, compare the homes' original list prices to their final sales prices. To calculate ratios, compare the final list prices to the actual sold prices. Compare your property to at least three other properties that have recently sold for market value. Most local assessors' offices will provide sales lists, and some newspapers' business and real estate sections will publish quarterly sales reports. In a seller's market, it's common for homes to sell for more than their asking price. In a buyer's market, homes usually sell for the asking price or less. Adjust final sales prices up or down for differences in lot size, configuration, and amenities or upgrades.Look for listings that have been withdrawn or that have expired
Check the history of any expired or withdrawn listings to see if they were ever relisted. The term "expired" denotes that the listing agreement's term has expired without a sale. The listing agreement is still in effect, but the homeowner has decided not to market the home. To get the actual number of days the properties were on the market, add these days on the market to the listing time periods. Look for patterns in why they didn't sell, and make a note of any common factors. What was the name of the firm that had the listing? Was it a full-service brokerage that sells everything it lists or a discount brokerage that didn't spend enough money on marketing the house? Tip: Think about the actions you can take to keep your home from going on the market expired based on this information.Pending Transactions
The final sales prices of homes that have not yet sold will not be known until the transactions are completed. That doesn't mean you can't call the listing agents and ask how much a property is selling for. Some agents will inform you, while others will not. Keep track of the days on the market once more. This can have a direct impact on how long it takes for you to receive an offer. Examine the history of these listings to see if they have been reduced in price.Listings that are currently available
Keep in mind that sellers are free to ask whatever price they want for their homes. That doesn't necessarily imply that they'll get that price. Please take a look around these active-listing homes to get a sense of what buyers will see when they come to see them. Please make a list of what you like and dislike about the properties and how you felt when you walked into them. Tip: Create a similar atmosphere of welcome in your own home if at all possible. These are your competitors' properties. Consider why a buyer would choose your home over any of these others, and adjust your price accordingly.Cost Comparisons by Square Foot
After you receive an offer, the buyer's lender will order an appraisal, so you'll want to compare homes with similar square footage to get as close to the appraised value as possible. Appraisers prefer to stay within 10% of net-square-footage calculations and avoid more than 25% deviations. If your house is 2,000 square feet, comparable homes are those that are 1,800 to 2,200 square feet. You can't simply multiply your square footage by the average square-foot cost, at least not unless your home is average in size. As the size decreases, the price per square foot rises, and as the size increases, the price per square foot falls. Note that larger homes cost less per square foot, while smaller homes cost more per square foot.Pricing that is determined by the market
After you've gathered all of your data, you'll need to analyze it in light of current market conditions. Assume the last three comparable sales in your area totaled $250,000. In a buyer's market, your sales price may have some wiggle room for negotiation, but you'll want to be close enough to the most recent comparable sale to entice a buyer to tour your home. In that market, you might need to price your home at $249,900 and settle for $245,000 to sell. You might want to add 10% more to the most recent comparable sale in a seller's market. If there's little inventory and a lot of buyers, you can ask for a higher price than the previous comparable sale. That $250,000 house could fetch as much as $265,000 or more. In a balanced or neutral market, you might want to start by setting your price at the most recent comparable sale, then adjust it for the market trend. If the last sale were three months ago, a price of $254,500 would make sense, but the median price has risen by 1% per month since then.There is assistance available.
If you think you're in over your head, go to the Federal Housing Finance Agency's website. It has a number of tools to assist you, including a House Price Calculator that can help you factor in factors such as property appreciation since you bought it.Most Commonly Asked Questions (FAQs)
What if your home doesn't appraise for the amount you paid for it?
The buyer can try to negotiate a lower sales price if the appraisal for your home is lower than expected. The seller is not obligated to lower the sales price, but the buyer has the option to walk away if the difference between the appraised value and the sales price is unacceptable to them. The seller may request a second appraisal, but the buyer is not required to agree.How much does a home cost on average?
A home in the United States costs around $375,000 on average. Using the Federal Reserve Bank of St. Louis resource, you can see how average sales prices fluctuate every quarter. The cost of a home varies greatly depending on where you live. The most expensive houses are in the West and Northeast, while the Midwest and South have lower average sales prices.