How To Price Your House
Home sellers, naturally enough, want to sell their properties for the highest amount possible – but also to sell their property quickly, two goals that sometimes work at cross-purposes. Either way, a seller has to know what their house is likely to sell for. How do you find out? What do you look for?
Generally, there are a few things everyone selling their home should remember if they want to find an accurate price.
1. Comps are the most important thing to take into account when pricing your home. A comp is the price you arrive at after you find out the price at which similar (comparable) homes have sold. And not just sold, but sold recently, and nearby: within the past three months, and inside of a half mile is ideal. Other local market conditions matter too. Is the property near a well-rated school? Is it in a high-crime area? These affect pricing.
2. Remember to look at the immediate neighborhood. A half mile can sometimes result in wildly differing prices. If all the houses immediately adjacent to a property are notably high (or low) in price, that may impact the value of the home more than a similar property at the very edge of the search radius.
3. Wholesalers generally do not work with an appraisal contingency, but if you work with a realtor or bank, your sales price may absolutely require an appraisal. The appraisal is nearly always based on the sales price of sold comps.
4. Square footage is not necessarily the critical factor when pricing a home. It certainly is when comparing apartments or condominiums in a complex, of course. But single or multi-family houses may have very different floor plans. A three floor city warehouse will rarely have the same price as a ranch style suburban single even if the square footage is exactly the same.
5. The worst way to price a home is to base it on what you would like its value to be. Sad to say, the price you originally paid for the home, the value of the property several years ago, the amount spent on repairs and improvements, the amount you want to get, your personal opinion of the home’s attractiveness, all have virtually no impact at all on the home’s comparable value — but can leave a seller stuck for months or years trying to sell property at a price that the market will simply reject.
6. Under- or over-pricing your house may both be bad strategies. Some sellers under-price in hopes of starting a bidding war — which may never start, and which can leave the seller stuck with a price lower than preferred. Over-pricing can lead a price reduction that may cause potential buyers to be suspicious of hidden problems with the property, or wait for still further price reductions. Either possibility can slow down and sometimes even kill the sale.
7. Remember that a comparable price assumes that your own property has been brought up to par and is in good condition throughout. If property exactly comparable to your own, in good shape, sells for a given price, and your property needs a new roof, furnace, windows, and foundation work, you will only get the same price if you first fix all those issues — or, if you subtract the price of fixing all those issues from your asking price. If your price “comps out” at $50,000 but your property needs a $10,000 roof, the most you’ll get is $40,000 — the new owner will need to spend $10,000 to get it into the same shape as that comparable property, and they’re not likely to spend $50,000 plus $10,000 in repairs on a property that will only return $50,000.
8. Don’t base your price on just one comp. And, as a rule of thumb, kick out the highest- and lowest-priced comparable properties you find. The reason is that while most home sellers get their properties up to par prior to selling, some don’t, and sell “as-is,” cheap. Others may get a windfall profit from a seller for reasons unknown. If a well-off couple retiring to Florida sell their $50,000 home to their grandchildren for a dollar, that doesn’t mean that that property, or one like yours that is similar to it, is worth a dollar. If an expanding business buys an adjacent house on the corner and pays double market value to do it, that doesn’t mean they want to pay you double market value too. Several comps, averaged out, and with the high and low exceptions ruled out, give you the best price estimate.
9. Lastly, don’t underestimate the value of public independent comps. Zillow, Trulia, Homesnap, Realtor.com, and many other such sites offer their own, free, data-based estimates of property values. Those values may vary sharply at times, but when there appears to be a consensus, it’s one worth noting, not least because many a seller will be researching the very same sites. I’ve personally found that sites like Zillow or Trulia sometimes tend to price homes rather higher than my own independently done comps, but not always; in either case I’ve found it a good rule of thumb rarely if ever to price a home higher than Zillow or Trulia or other major sites. It’s also true that the best of these sites strive for continuous improvement. They’re only one tool among several you should be using, but they’re a useful tool now, and they’ll only get better.