Pricing your home properly is key. Very few homeowners in the Western world don’t think their home is worth more than the comparable analysis indicate. It will be essential for you to do your best to remove your emotions and personal opinions when it comes time to properly price your home. While you can argue all day long that your flooring is new or you have the best view of the park, it will all boil down to a few important components.

Your trusted Realtor has access to plenty of research, and has inside access to MLS. This in itself, should give you a fairly accurate indication of the current marketing value. Avoid thinking of your home price as being what your home is “worth.” Instead, consider the price to be the current market value. Remember, your home is only worth what qualified buyers are willing to pay. Let’s review how your agent will prepare the comparable.

Sold listings

Ideally, there will be at least 3 homes that have sold in your area in the past few months. From those few, the agent will compare the properties on paper. Some of the things to consider and compare include:

  • Age of the home
  • Size of the home (square footage)
  • Upgrades
  • Property lot size
  • Number of bedrooms and bathrooms
  • Pool or not
  • Overall condition, including roof, Heating/Air, flooring, etc.

Most MLS’s will allow agents to see what previous homes sold for by square foot. While this can be helpful, it shouldn’t be the only indicator. Clearly if a home next door to you sold for $185 per square foot, but needs a new roof, has no upgrades, and clearly is in bad shape, that would serve as only a jumping off point to keep in mind. Coming up with a starting point requires a patient and well-researched effort and is not an exact science. When your agent is comparing your property against the ones that have sold, it will be vital that she’s comparing apples to apples. In other words, if the only recent sales are brand new tract homes on small lots, while yours is a 30-year old ranch house on acreage, this can become much more complicated, and in fact, may involve a little bit of guess work. Depending on the market, it’s not unusual for a property to sell higher or lower than the list price. A good rule of thumb is that it’s easier to lower the price than raise it, but there is also something to be said for not letting a listing sit on the market for too long, lest it becomes “stale” and buyers lose interest is seeing it.

Actives

The number of active listings in your area is important too. Some agents do not include this in their pricing strategy, but I contend it’s the most important consideration. Why? Because we know the market changes and what a home sold for last month, may be different from what it it will sell for this month. And not purely for pricing, but for determining the desirability factor. In other words, if yours is the only house in your neighborhood, it may be a sign that it’s a desirable neighborhood and you can command a bit higher of a price. Conversely, if there are six other active listings in your space, then you’ll have to be strategic in your offering and pricing. You’ll also want to know how long the active listings have been active. There is a big difference between homes selling within a week, versus those that are sitting on the market 3-6 months later. This term is “days on market,” in MLS. Just like the listings that have recently sold, your agent will want to compare the active lisitngs to your property to help determine the best price point.

Pendings

Listings that are pending are ones that should be closing soon. Often times your agent can call the other agents and get an idea for how close to the asking price the seller accepted. Any insight the agent is able or willing to give may be useful in helping you determine your own fair market value.

Expired Listings

Of course, those homes that were priced too high will sit on the market and go stale. Once a home has set on the market an extended period of time, not only do buyers grow tired of seeing in on their online searches, but other agents start ignoring it in their searches too. All homes will sell when properly priced, so the last place you want to end up is as an expired listing if you can help it.

Appraisals

With even the most diligent of efforts, appraisers may come up with a completely different price. When pricing your home, the kinds of loan it will qualify will be very important. While we’ll touch on that more in the section on offers, for now just understand the role the appraiser plays. Once you’ve accepted an offer on your home, the buyer’s lender will eventually send out an appraiser to determine the value. Logically enough, the lender will not loan the buyer more money than the appraised fair market value. Thus, if the lender comes back and decides that the current market value is less than the purchase price, the seller has two options. First, he can reduce the price to match the appraisal, or secondly, he can cancel the sale. There is the third rarely used option of the buyer coming up with the funds to fill the missing gap. Clearly, most buyers do not want to pay more than a house is worth (even if it’s just according to an appraisal).

Further, if the buyer is question is using some kind of government-backed loan, such as FHA, the appraisal price will stick with the property. In other words, let’s say the seller decided to cancel the contract because he was not willing to come down to the appraisal price. Because it was an FHA loan, that new price will show up for any future FHA buyers looking at that same property for a certain period of time. Thus, the seller who canceled would need to find a cash or conventional borrower in order to sell the home.

We’ll touch a little bit more on the importance of loans in a future posts. For now, the best advice is to trust your agent. Price competitively, based on the current market value, conditions, and inventory. If your agent tells you later on that it’s time for a price-reduction, then be agreeable. Remember, your agent only gets paid if your property sells, so it’s important to let them do their job.