Have you ever wondered how real estate agents come up with a valuation of your home? In this article, I’ll show you how to properly price your home - especially during COVID 19.
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Side note: If you want to sell your home quickly and have buyers fighting over your home, there is no better marketing than pricing your home properly - NO. BETTER. MARKETING!
So, what are the components to consider when coming up with the proper price for your home?
These components are what you need to consider if you want to know how to properly price your home. These components are a big reason why good, knowledgeable real estate agents and appraisers are in such high demand.
The value of your home is determined, most of all, by “comparable” homes that have Sold, that are currently Active on the market, those that are Pending, and those that have Expired.
Solds are homes that have actually closed. The title of the property is with the new owner. It’s in the books. It is now a FACT and serves as a great indicator of the market value of the area for that type and that size home.
Active homes are homes that are currently on the market. We need to look at these homes because they are our immediate competition. We want to study them and make sure we make your home a “better" deal than that home so we drive buyers to your home rather than us driving buyers to our competition.
Homes that are in Pending status serve as a great guide for us. We want to know why these homes were chosen over the other homes on the market. Then we want to compare and see what we can do to get the same result - get offers that we can accept.
The last type of homes we need to look at are homes that have Expired. We want to study these homes because we do not want to be in the same situation. We want your home to sell, not expire too, right?
So let’s first talk about what is considered a “comparable” home.
What is considered a “comparable” property to your home anyway?
Appraisers have different ways of coming up with “comparable” homes, but typically they will look at the number of bedrooms, bathrooms, and the size of the home up to a certain percentage, as well as the distance of the comparable homes from your home.
What do I mean? This how they’ll search for the comparable homes:
Once there is enough data to come up with a “range” in value, then other components come into play to hone in on the value even more.
One of the most important components in how to properly price your home is your timeline. The more time you have to sell your home the more wiggle room you have. If your time frame to sell your home, for one reason or another, is short, then you don’t have as much wiggle room and must price your home accordingly.
Although, depending on the market, there are other ways you can go about this - you may be able to price your home at a higher price (as if you don't have a time constraint) while still possibly meeting your timeline - but we’re not going to go into that here. This is where your experienced real estate agent will be worth their weight in gold.
If your home has any of these location amenities, you increase the desirability of your home.
These amenities need to be considered finding out how to properly price your home.
Just as the above amenities increase the desirability of your home the opposite also needs to be considered if your property is located near any of the following:
All of the above decreases will cause your home to potentially not get the top value.
Are there any large or major employers near your home that would attract buyers to the area? If not, are there plans to attract those major employers to the area?
Major employers contribute greatly to the area’s economy. It will attract more people to the area to live closer to work, which will attract more retail and small businesses, which will cause more people to want to live in the area.
A new home development means your area is growing. If it’s growing, then demand for housing will increase. This is considered a “trend” which is considered when valuing your home. An uptrend means your home will not have an issue appraising higher than the list price if the home is priced at market value.
If there aren't, are there any plans to attract new builders to your area?
New builds also include new apartment buildings.
The condition of your home is very important. Though it is not the reason why your home will sell for more money - at least not directly - it does help your home sell faster because it’s more desirable than the next home that has fewer upgrades at around the same price or at market value.
It is more desirable to the buyers because they realize that for the same price they are getting a better home. That “desirability” of getting a better home for roughly THE SAME price, and not the upgrades themselves, will cause the bidding war within the buyers, thus causing it to sell for more.
The bottom line is to price your home at market value and potentially drive the final price higher by having buyers fight over your home. Pricing it well is what will cause it to sell for more and not the other way around.
I typically view ALL of the comparable homes within the quarter to a half-mile radius around your home that is currently in Active Status. I even look at those homes that aren’t a comparable because I may be able to use the info and just do an “adjustment” to the value depending on what those homes may have or have not compared to your home.
I do this because I need to know the current condition and feel of those homes compared to your home. There is a BIG difference between looking at pictures or even videos online versus actually being there and judge the quality of workmanship up close.
I also call the Pending and Sold homes if there is any relevant info that I need, like did the seller give the buyer concessions towards closing costs and did it via increasing the price or just straight-up credit instead of making repairs.
Information like this matters when it comes to coming up with the proper value for your home because we want to make sure we’re comparing apples to apples.
The size of your lot, especially if you’re located in the suburbs where the other homes are in smaller lots, your home will stand out. This will increase the value and desirability of your home.
If your home has a working pool, it will add some value, but not much. It’s what’s around the pool that adds the value (more on this later).
If your home is located in a cul-de-sac or a corner lot, you’ll typically have a larger lot in the neighborhood.
Garages, a renovated kitchen, and a larger backyard are the top features for home buyers due to demand for storage and space for entertaining. This is from the article in Realtor Magazine dated July 22, 2020.
Entertaining is becoming THE thing for a lot of home buyers. Sliding glass doors that give full access to the backyard is starting to be a big, sought after feature on homes, especially for smaller homes with smaller backyards. Adding this feature gives the smaller home more room for entertaining as it extends the living space to the backyard.
Other amenities that increase the value of the home are a pool with all the “fixings’ around it. The pool is not enough. It adds some value, but not at the same costs to build it. It’s what’s around the pool that increases the value, like an outdoor kitchen, an area for a dining table, and an area to sit and enjoy the backyard.
The Indoor/Outdoor feature is a big feature that needs to be considered when trying to come up with the proper value for your home.
Another amenity that though it may not directly affect the value, but will definitely increase the desirability, is if you have large enough room for an RV or storage space. Storage is a big feature that will help you attract more buyers.
1) Using the appraisal from when you refinanced
An appraisal for a refinance and an appraisal for a home purchased are two entirely different beasts. Do Not Use this value to come up with a value for your home.
Here is why not.
The appraiser has no value to work towards - meaning he doesn’t have a purchase price (which, most of the time is pretty close to the value of the home due to most agents are familiar with the area and market), so they typically value the home as high as they can because the bank wants to lend you money. The bank wants to make the refinance work and the appraiser tends to want to price it as high as they can.
The refinance appraisal tends to be much higher than the purchase appraisal.
2) Price Per Square Foot (ppsf)
Let me get this out of the way - using the price-per-square-foot method is the easiest way to quickly get an idea of a home’s value and is also a very, very inaccurate way to do it.
There is a lot more to properly pricing your home’s value than just 2 sets of numbers.
I could write an entire article or do a full video of why not to use the Price-Per-Square-Foot method, but for now, let’s talk about how to properly price your home.
If you have something to say about using the price-per-square-foot method, please comment below and we’ll have an open discussion.
If you do use this method, please make sure you compare apples to apples. What I mean is to compare it to almost the same square footage.
Let’s look at an example.
If you look at a home at 2500 square feet that sold for $500k, you get a ppsf of $200 psf.
But when we look at the homes in the same neighborhood that are only 2000 square feet, the data says they’re selling at $225 psf.
If you use the wrong number because you’re not comparing the same square footage, you just gave away $50,000. Ouch, but you just made a buyer very, very happy!
In addition, you have to make sure that those homes have the same upgrades, condition of the home, and amenities. The ppsf method is not a very accurate way to come up with the proper value of your home.
Let’s do it the right way!
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