How Much Is My Home Worth?
Correctly pricing a home for sale is the most important part of getting it sold. No matter how much marketing you do, an over-priced home will usually sit on the market. If you are attempting to sell your home by- owner you’ll be faced with the challenge of finding accurate comps on public search sites and also understanding the other elements of proper pricing. Here is how we do it:
There are three methods commonly used to determine a range of value; they are income approach, cost approach, and market value approach.
- The income approach is mostly used for investment, income producing properties or commercial real estate.
- Cost approach takes into account what the property can reasonably be used for and is often applied to vacant land.
- Market value approach compares similar properties that have recently sold.
This method is most commonly used by real estate agents when a home buyer formulates an offer, and the buyer’s bank appraiser to determine a range of value. A bank appraiser is sent out to justify the contract price and determine what the home is worth to deliver that range to the bank. The bank will only lend you money based on the agreed purchase price or the low-end of the appraised value; whichever is the lesser of the two. The appraisal is done for their benefit, not the homebuyers. They want to know if you default on your loan they will be able to sell at market value and get their money back.
Other elements of pricing include:
- A visual inspection by the agent
- Analysis of the comparable homes that recently sold within the past 3-6 months and as close to the subject property as possible. Technically those homes should be physically seen as well but since they have already been sold we have to study whatever is in the MLS.
- Analysis of the subject neighborhood
- Absorption Rate – The amount of homes that sell in a month. This is used to determine the strength of the current market. Divide the number of properties selling each month by the number of competing homes currently on the market. You’ll need to get the information from the MLS to correctly calculate the rate.
Real estate agents retrieve our data from the local MLS, which is deemed to be the most accurate information available. The issue with many public search sites is they “scrape” data from many different sources and don’t always know if it is correct or not. Some of these sites have gotten better by using direct feed agreements with local MLS sites.
TIP: Realtor.com is a great site to use because it has a feed from the MLS and updates every 15-30 minutes.
Many of these sites also offer online valuation tools that tell you what your home is worth. Unfortunately, they are not a realistic view and are meant to provide a ballpark figure, not an exact number simply. At times they are way off and occasionally spot on. The bottom-line is, a home needs to be physically seen and all the above factors are taken into account. This is why you shouldn’t go by online valuation tools.
The market data we use to create a Comparative Market Analysis or CMA consists of active, pending, and sold properties. The only properties that matter when determining a listing price are the sold listings. Active listings are your current competition, and a seller can ask whatever they want for a property. A home is only worth what a buyer is willing to pay. You may think your home is worth a certain amount, but if nobody is prepared to pay that price, it’s not. What the house sells for determines its value.
A home seller is either in the “learning phase” or “selling phase”. If you choose to resist or ignore the market data and over-price your home from the start, you are in the learning phase. You’ll watch homes sell around you, listen to feedback from buyers and agents regarding the price, sit on the market, and most likely reduce the amount to the initially recommended list price. In the “selling phase”, you are willing to be realistic and respect the market data that is publicly available thus pricing right from the beginning.
Your agent should be sitting down with you and explaining all factors in complete detail. You the seller are in charge; all we can do is offer the market data, our expertise, and knowledge to help accomplish your goal.