How to Price Your Property When Selling Your Home
What is your home really worth?
In a way, that's a trick question. What your home is worth to you, considering the newly remodeled kitchen and the children's park across the street, could be very different from what the home is worth to a couple who hates to cook and whose kids are grown. So before you put a price tag on your home, read this page and learn about:
- Comparative Market Analysis—an objective tool for pricing your home
- Why overpricing won't work
- Other factors in pricing your home
- Why price isn't everything
Comparitive Market Analsis: How to Determine Your Home’s Fair Market Value
Your home's "fair market value" is the price a buyer agrees to pay and you agree to accept. All homes ultimately sell at this price, assuming neither party is feeling forced to act quickly because of some major life change, such as divorce or a job transfer.
Instead of using subjective measures, the housing market uses a written "Comparative Market Analysis" or CMA. It's the most important factor in determining what your home's fair market value is.
What goes into a comparitive market analysis?
A CMA compares your home to comparable homes, or "comps," in your neighborhood that are either presently on the market or have sold in the last six months. A comp is similar to your home in terms of how big it is, how old it is and what shape it's in.
Most real estate agents will give you a CMA based on their comp books. They'll do this for free, hoping you'll list your home with them. Interview several agents to get a written CMA from each. Each CMA contains valuable information on several recent sales nearby, including:
- How long each stayed on the market
- How close the sale price was to the asking price
- Notes comparing each home to yours, e.g., number of bedrooms
For a couple of hundred dollars, you can also pay for a professional appraisal of your home to get an unbiased opinion of your home's fair market value. If you're selling your home on your own (FSBO—"for sale by owner"), it's a good idea to do this.
The Reasons Why Overpricing Your Home Won't Work
Remember, buyers won't take into consideration how much you paid for your home 30 or even three years ago, or how much you spent on the new kitchen, or how much you need for a down payment on your next home. They couldn't care less! Or, if the housing market has taken a downward turn and your home is not worth as much as you paid for it, the buyers are not responsible for making up the difference. Sure, you can try to price your home way above fair market value, based on your own needs or opinions, but it's not likely buyers will pay it. In fact, you'll probably waste months of your precious time, only to have your house become stigmatized by its length of time on the market. You could even wind up getting less than fair market value this way.
What are other factors to consider in pricing your home?
Beside "comp" prices, there are other things that can play a role in pricing your home:
- Interest rates. Are they going up? This could cut into the pool of prospective buyers, who may wait for rates to come down again before they seriously shop for a home.
- Housing market conditions. Are home prices in your neighborhood going up or down?
- Economy. The local and national economy can affect your home's price. Have there been major layoffs at a large company in your community, or has a particular local industry taken a hit?
- You. If you're in a hurry to sell for whatever reason, you may not have as much leverage in the final sales price.
- Supply and demand. What's the availability of homes in your area? Is it a seller's or buyer's market?
Price isn't everything when selling your home
The overall package of what a buyer offers is what counts. Say one buyer offers you your full asking price, but also demands that you pay his closing costs and his mortgage loan "points," plus leave behind your favorite art deco light fixtures. Another buyer won't go higher than $3000 below your asking price, but has no such contingencies. Which one's the better deal is your decision.