Estimating the Market Value of Your Home
Professional appraisers sum it up in three words -- buyers make
value. Ultimately, the value of your home is what a reasonable
buyer is willing to pay within a reasonable time. Setting an
asking price for your home requires that you anticipate what
most buyers would be willing to pay. This requires a close look
at comparable home sales in your area, as well as making an
assessment of the state of the real estate market itself.
Pricing correctly is fundamental to the successful outcome in
the sale of your home.
Market Analysis
Homes listed for sale and recent closed sales in your area will
usually provide relevant comparable data for pricing your home.
Closed sales show market confirmed prices, while listing prices
indicate the current trend in pricing. Later, when your home is
appraised for the buyer's loan, the appraiser will only consider
recent closed sales. Asking prices will not be considered. A
sales price that is solidly based on recent sales of similar
homes will not have a problem when the price is later reviewed
by an appraiser. If your home is superior or inferior to most
homes in the neighborhood, or if there are few or no nearby
sales, then anticipating the responses of potential buyers will
be more difficult. In this case, a trial and error strategy may
be necessary. This is a sensitive area and requires a realistic
assessment of your home and its market. For example, one very
nice home was continually rejected because it had the master
bedroom upstairs, and it was located in an area where most
buyers were over the age of 45, with older children. Real Estate
Market
An important aspect of pricing is an assessment of the state of
the real estate market. The market may favor buyers or sellers,
or be in balance. An indicator of the quality of the market is
the number of months of standing inventory in your market and
price range. Consider your market area to be all neighborhoods
that offer competing choices for your potential buyer. Here is
how to do that:
Count the number of sales in your market area and price range
for the past 12 months.
Divide the number of sales by 12, to get the number of sales per
month (sales rate).
Count the number of homes on the market now.
Divide the number of homes on the market by the number of sales
per month (sales rate).
This will show you the number of months it will take to clear
the current inventory.
Seller's Market
Less than 6 months of standing inventory is considered a
seller's market. In a seller's market the number of buyers is
large in proportion to the number of homes for sale. The demand
for homes is greater than the supply. Buyers must compete with
each other for the available inventory. There may be multiple
offers received shortly after a property goes on the market.
Buyers will submit the highest possible price and terms that the
market will support. Prices will trend upward. In a climbing
market, pricing slightly above recent sales is appropriate.
Buyer's Market
More than 8 months of inventory is considered a buyer's market.
In a buyer's market the number of buyers is small in proportion
to the number of homes for sale. This situation can be created
by high interest rates, employment decline and excessive
building. A low number of buyers equals a lower price. Sellers
must compete with each other for available buyers. Prices trend
downward. In a falling market, prices should be set at the lower
end of the range, because time works against you. In six months
prices may be lower. This may be difficult to do, especially if
your home was purchased at a higher price.
Price Per Square Foot
Dollars per square foot is often used as tool for comparing
homes of varying sizes to determine a list price. When price per
square foot is used, it is important to keep in mind that you
must make a sliding scale adjustment from larger to smaller
homes. In other words, the larger the house, the lower the price
per square foot for comparable homes. This is because the core
square footage of a home has a higher value than the peripheral
area. For example, the price per sq. ft. on a 1,000 sf home will
be much higher than a 5,000 sf home, with other things being
equal. We usually graph the neighborhood prices per sq. ft. to
get a visual picture of the market in the neighborhood, as well
to see how much the price per square foot declines from smaller
to mid-sized to larger homes.
Should you price high, and hope for an offer?
Houses should not be priced over the market. This is not the
best way to position your home for several reasons:
Your home will be shown to the wrong group of buyers, from whom
you need an aggressive negotiator - someone who will make a low
offer.
You will inadvertently help to sell the competition. Your high
price will convince buyers that another home is a good value.
Your days on the market is evident to buyers, and is a subtle
but important factor in their decisions. Your best leverage
occurs during the early marketing period.
How will you know if the price is correct?
The best affirmation of correct pricing is second looks from
buyers. This indicates that your home appeals to buyers in your
price range. There may be a few nibbles before a buyer comes
forward who is ready to act. It helps to get feedback from
Realtors and potential buyers. Keep in mind that they will often
be reluctant to say negative things. The summary of feedback is
more important than what they say. Are you getting nice
rejections or are you getting second looks?
How will you know if the price is incorrect?
You may have steady showings, but lukewarm responses. This
indicates that are buyers, but they have other choices with more
competitive prices. Or, you may have very few showings. In this
case, the buyer pool for your area, or for the style or
condition of your home is small. This will require a strategy of
more competitive pricing and a longer marketing time. Remember
that a small buyer pool, for any reason, is a "buyer's market"
and requires more aggressive pricing.
How long should you market a home at a given price?
There is no uniform time frame for marketing at set price. I
think about 8-10 showings is a reasonable number for feedback
regarding the price. This usually corresponds to about 2 - 6
weeks for an average home in a balanced market. About 30 days
marketing time for a given price could be good a rule of thumb.
However, this may be too short for your home if you have an
unusual or very high end home for which there is a small market.
Or, 30 days may be too long for your home if you need to move
fast.
What happens if your home does not sell in a reasonable time?
If your home has been on the market for months with no offers,
you have been given a clear message that the price is set too
high. This is particularly true if showings have slowed down and
there are few prospects coming to see it. What you do at this
point depends on whether you really need to sell. If you're not
really motivated to move soon, you can always wait for the
market to catch up to the price you want. It would be best to
take your home off the market and wait for better conditions.
Buyers become suspicious of a house that's been for sale for a
long time. If you need to sell, consider a schedule for dropping
your price until it reaches a level that attracts buyers.
There's no reason to say, We simply can't sell our house. Houses
will sell if the price is right.
How can you get top dollar for your home?
Although buyers will not pay more than market value, they will
pay a premium for homes that are in excellent condition and well
presented. With good condition and presentation, you can reach
the high end of the price range achievable for your house. We
will work with you to "create value" before your house goes on
the market. When it goes on the market, we will make sure that
your home is show beautifully to a wide audience.