Pricing Your Home
A comparative market analysis (CMA) is an important tool for properly pricing your home and determining the fair market value. A CMA uses location, key characteristics (size, rooms, ammenities, etc.) to help in determining value and is based on similar properties in the area. The market analysis takes into account the amount received from recent sales of comparable properties and the quantity and quality of comparable properties currently on the market. The desired end result is to find a price that will attract a willing and able buyer in a reasonable amount of time.
There are essentially three categories of comparable homes that you should use to help determine the value of your home. The first category is comparable homes that are currently on the market (i.e. available to purchase). This category represents the competition for your home. There are likely several homes in this category that potential buyers will cross-shop while they are considering your home.
The second category of comparable homes to consider is homes that have recently sold (i.e. within the last year). This category represents what buyers were (and hopefully still are) willing to pay for a home that is comparable to yours.
The third category of comparable homes to consider in your CMA is homes that were for sale but did NOT sell. Real estate agents often refer to these homes as “expired listings”. More often than not, homes that do not sell are overpriced. Therefore, this category represents what buyers were NOT willing to pay for a home comparable to yours.
All three categories of comparable properties are readily available to the public through popular real estate websites (and mobile apps) such as zillow.com and trulia.com.
Once the value of your home has been determined, you can decide on an asking price that will achieve your goals. Generally, the price should not exceed the value by more than 5% or potential buyers may not even make offers. Naturally, if you want to sell quickly your asking price should be very near the actual market value.
Some people also use taxable value, state equalized value (SEV), and appraisals to try and determine market value, but these are all very often inaccurate and are generally created for a purpose other than selling a home. True market value is most accurately estimated by using the comparative market analysis method described above.
The following are a few things to keep in mind about pricing:
- Realistic pricing will achieve maximum price in a reasonable time.
- Your cost or profit desire is irrelevant; the market determines price.
- The costs of improvements are almost always more than the value they add.
- Houses that remain on the market for a long time do not get shown.
- A house that is priced right from the beginning achieves the highest proceeds.
Determining the best asking price for a home can be one of the most challenging aspects of selling a home. It is also one of the most important. If your home is listed at a price that is above market value, you will miss out on prospective buyers who would otherwise be prime candidates to purchase your home. If you list at a price that is below market value, you will ultimately sell for a price that is not the optimum value for your home and risk “leaving money (profit) on the table”. More buyers purchase their properties at market value than above market value. The percentage increases as the price falls even further below market value. Therefore, by pricing your property at market value, you expose it to a much greater percentage of prospective buyers, thus increasing your chances for a sale while ensuring a final sale price that properly reflects the market of your home.
Another critical factor to keep in mind when pricing your home is timing. A property attracts the most attention, excitement and interest from the real estate community and potential buyers when it is first listed on the market. Improper pricing at the initial stages of trying to sell your home misses out on this peak interest period and may result in your property languishing on the market. Eventually, this may lead to a below market value sale price or even worse, no sale at all. Therefore, your home has the highest chances for a successful and profitable sale when it is new on the market and the price is reasonably established.
