How to price a home

Many real estate investors buy and sell real property as a means to generate a positive cash flow. This can be a lucrative addition to any financial portfolio, but as with any investments, there are risks involved. One of the more difficult choices is deciding how much to try and sell the home for, or how to devise an accurate listing price for the real estate that is being sold.

The first thing that comes to many minds is the county tax appraisal. While this appraisal may seem as good a place as any to discover the cash value of a real estate investment, it will not always give an accurate picture of current trends in the local real estate market. The property taxes often reflect only general amounts and will not give a clear view of what type of real estate pricing the local market will withstand.

Another popular option is the property appraisal. While most lending institutions require the homebuyer to get a property appraisal, it is rarely necessary for the current homeowner to spend the money in order to get this appraisal done. While this is a viable option, it is an added expense in the already costly field of real estate investments.

Allowing a qualified realtor to make set the listing price may or may not be a good idea when selling a home. If the realtor is intelligent, has great information and is highly qualified and honest, then they may indeed be able to offer good insight into the listing price of the house for sale. Many times, the realtor may not be so well informed however, or they may be among those who will put their personal interests above the needs of the client or seller.

Checking out the prices of other real estate values in the same general area is always a good indicator of what is available on the local market and the price ranges that are likely to be paid for a house by a real estate investor. There may still be unforeseen circumstances that the homeowner is unaware of resulting in inaccurate listing prices being published, which will ultimately be detrimental to a quick and easy real estate sale.

When most, or even all of these factors are considered equally for a prime piece of real estate, a more accurate understanding of what exactly mandates the fair local market value of a home will result. This will allow the homeowner to objectively look at all of the relevant information and come up with an asking price that is both fair and reasonable.

Real estate investment is a financial transaction much the same as any other for any portfolio. The only difference is in the physical existence of the real property instead of an intangible stock or bond. As with any financial investments, it is necessary to look at all of the facts that are available in order to be able to make sound investment decisions whether it is for buying or selling the investment in question.

Setting the Price

When pricing your home, you may consider the price you originally paid, add a substantial markup and presume you’re done. This would be a grave mistake; one that could wind up costing you thousands or end in no sale at all. In order to price your home to sell there are many things that should be considered:

Obtain A Few CMA’s (Comparative Market Analysis):

When interviewing agents, you should obtain CMA’s from each agent offering an idea of the price your home should sell. A CMA details the prices of similar homes recently sold, on-the-market homes as well as homes that simply did not sell in your area.

Be wary of agents attempting to “buy” your listing. An agent practicing this technique will often sweet-talk you with their elevated price recommendation waiting only a few weeks to insist on a price reduction. Be mindful: a home on the market for extended periods become less saleable. People begin to wonder if there are significant defects with the property or whether the seller is truly motivated.

Some agents suggest under pricing your home hoping to start bidding wars amongst hungry home buyers. While this technique may work to an extent in some markets, it is often a wiser decision to market your home at an appropriate price from day one.

Calculate the Price per Square Foot

The average square feet of homes in your area can be considerable help in determining a proper listing price for your home. However, it is not recommended you rely on this tidbit of information solely.

Evaluate Market Trends

How quickly are homes selling in your area? Are prices increasing or decreasing? Are you in prime selling season (typically during spring) or attempting to sell in the drooping winter season? How many offers are sellers typically receiving once on the market? These are only a few of many questions that your agent can help answer.

What Major or Minor Problems Exist Within Your Home?

If you’re in a sellers market you may not need to worry about fixing most problems in your house. Buyers are much more open to problematic homes when they are having a tough time finding one in the first place. However, if you’re in a buyers market it would be wise to fix as many problems in the house as you’re financial able to.

Either way, a home with problems will not generate as much value as a home in almost perfect condition (no home is perfect!). An advisable solution would be to evaluate the potential cost of repairs. Determine whether these costs could be recouped during the sale of your property. It is certainly worthwhile to consult your agent as well as other professionals for matters such as these.

Jazz Up the Deal

Often, buyers come to the table with terms that some sellers are not open to accept. Some include quick sales, lease-options, or asking that closing costs be paid by the seller. If you are motivated to sell offer something up front to attract buyers that may be interested in such terms.

Reaching a listing price can be tricky; however, using reliable information with personal feelings aside, you can reach an acceptable agreement.


Tools for Determining the Market Value of Your Home

It is essential to list your home at the right price and it is important to get it right the first time. The pricing of a house is a major component in ensuring that your home sells quickly. There are several ways to determine the market value of your home, including an Automated Valuation Model, Comparable Market Analysis and Appraisal.

An Automated Valuation Model is an electronic appraiser that provides a Homes Sales Valuation Report by entering your property address. A Comparable Market Analysis is generated by your local real estate agent by comparing prices of similar properties in your area that have recently sold, are currently on-the-market or were taken off the market unsold. Unlike a Comparable Market Analysis, which is often obtained at no cost, an Appraisal is completed by a professional appraiser specifically for your home and costs between $200 and $300.

After inspection, the appraiser will determine the value of your home based on its condition, location and a Comparable Market Analysis of sold properties in your area.

Methods of Setting the Price:

1. Abandon your Personal Bias.

In order to determine the market value of your home, you must objectively establish what someone else would pay for your house.

This means setting aside your emotional attachment to the many wonderful memories you have shared in your home. Some things to consider when determining the price of your home: total square footage, floor plan, construction quality, condition, amenities, lot size, topography, view, landscaping and neighborhood.

2. Educate Yourself.

Visit local open houses and compare the location, condition, size and amenities of these houses to your own as objectively as possible. If your house is located in a neighborhood that is highly in demand, you will be able to get a higher price than you can for the same house in a less desirable area. A house that has been well-maintained will show better and, therefore, is likely to sell more promptly and for a higher price than one that needs work. When a house offers amenities that are currently popular in the marketplace, it will invite a higher price.

3. Get Comparable Market Analysis from Several Agents.

Schedule appointments with several agents to visit your home and give their suggested listing price.

4. Calculate the Price per Square Foot.

Using homes from the Comparable Market Analysis, divide the list price by the total square footage. This will establish a baseline value per square foot of homes in your area. Multiply this number by the total square footage of your house and adjust based on amenities.

5. Consider Market Conditions.

How is the economy? Interest rates? Local job market? What season is it? Homes tend to sell more quickly in the Spring and Summer months than in the Winter because people prefer to move during the longer warmer days and between school years. Are prices of homes in your neighborhood on the rise? Are they selling quickly? Check your Comparative Market Analysis to determine the Days on the Market for each comparable house sold. When real estate is booming, houses may sell in a few days. Ask your local real estate agent if it is a buyer’s or seller’s market. The Unsold Inventory Index, which indicates the pace of the market, is calculated by measuring how long it would take for all the homes currently on the market to be sold at the current rate of sales. A smaller index signifies a seller’s market, whereas a higher index suggests a buyer’s market. The Price Discount is the percentage difference between the seller's initial asking price and what the house actually sold for. A small percentage means the market favors sellers, while a large average discount signals a buyer's market.

6. Offer Incentives.

Be creative and flexible in meeting the buyer’s needs. For example, offering a short escrow will attract buyers who want to move immediately. You might propose paying the buyer’s closing costs to seal the deal. Cash incentives will help first-time buyers who need assistance with their down payment.