Setting the right price is one of the most important decisions you'll make. Eighty percent (80%) of effectively marketing a house hinges on being priced correctly from the start. Set the wrong price, i.e., overprice your home, and even the most talented agent executing the most sophisticated marketing plan will have the difficult (or impossible) task of getting the job done. Your house will likely linger on the market and become stale. Even worse, it will likely sell below market value - or not at all. If your goal is to get the most money in the shortest time, price your house correctly from the start.
The market value of your home is primarily based on three (3) key factors: Location, Size, and Amenities/Condition. Market value is the price (or range) at which a particular house, in its current condition, will sell within a reasonable period of time (i.e., generally 30 to 90 days in a normal real estate market). While the only true measure of market value is what a particular house actually sells for, you can come close in estimating the market value of your house.
Here are four (4) valuation methods to consider. A comparative market analysis and an appraisal are the two (2) most common and reliable methods used to determine a home's value.
1 | Professional Appraisal. Consider, getting an appraisal from a certified appraiser. The appraiser will visit your house, compare it to recent sales of similar neighborhood properties, make adjustments to develop an opinion of the market value, and provide you with a Uniform Residential Appraisal Report.
2 | Competitive Market Analysis (CMA). Ask a real estate sales professional to prepare a CMA. When you're ready to sell your home, request a Home Evaluation CMA. It is an informal estimate of value based primarily on recent sales of similar properties in the neighborhood. Active and pending properties on the market, as well as expired listings, are also taken into consideration.
3 | Online Valuation. Appraise your home online using an Automated Valuation Method (AVM).
4 | Do-It-Yourself Valuation. Collect information on recent comps and market data. Research public records. Use popular online sites (like Zillow.com, Trulia.com, etc.). Speak with local real estate professionals. Drive through the neighborhood and visit open houses. Also, gather information about any new construction and distressed properties (short sales, foreclosures and REOs) in the area. Compare your home to similar homes (in location, size and amenities) that have recently sold within the past 6 months and that are currently on the market. Then, arrive at a value based on that comparison.
1 | Location/Neighborhood. Location is the single greatest factor affecting value. The desirability for a particular school district, neighborhood, etc. is basic to a property's fair market value. House values tend to fluctuate from city to city (and even neighborhood to neighborhood). So, compare your house only with similar houses within the immediate area.
2 | Size/Square Footage. Size is the next important factor affecting value. Size is measured in square feet of total living area (heated space) or foundation size.
3 | Condition/Appearance. Physical condition (and appearance) of a house is also an essential element of market value. And, while it is almost impossible to determine exactly how much this factor affects a house’s value, current condition impacts the number of potential buyers who are interested in purchasing the property, which affects final price and speed of sale. Optimizing physical appearance and advance preparation for marketing, maximizes perceived value.
4 | Competition. Check out the level of competition in the area: availability of similar properties; average number of days houses are sitting on the market; and the list-price-to-sale-price ratio. Buyers compare your property against others in that neighborhood. They interpret value based on available properties on the market.
5 | Trends. Where is the market heading? Read the local newspaper, monitor leading economic indicators, analyze Federal Reserve monetary policy, watch the federal funds rate, etc. Is the job market in the area stable? What’s the unemployment rate? Are we moving in the right direction? Are property values increasing, stable or declining? What is the Months' Supply of Inventory (MSI)? Is inventory rising? Is there a balance or imbalance (i.e., a shortage or over supply) in housing supply and demand? What price ranges are selling better? What time of year do more homes sell? What is the status of interest rates and the overall lending climate?
The market determines the value of your home. By comparing similar properties (in location, size and amenities), making value adjustments for any differences, taking stock of current inventory and tracking marketing trends, you (and your agent) should be able to come up with your home’s fair market value (and fair market value range). Use the fair market value range and decide on your initial listing or asking price based on the current condition of your house.
Properties priced within market range generally generate more showings and offers, and sell in a shorter period of time. While properties priced too high have a difficult time selling, languishing on the market - or not selling at all.
Overpricing is the number one marketing mistake sellers (and agents) make. It frequently leads to "chasing down the market" where the seller prices the home above the market value and then have to repeatedly reduce the price as the market declines. The seller is out of sync with the market, i.e., always one step behind the reality of the market.
The Dangers of Overpricing:
"Observe due measure, for timing is in all things the most important factor." ~ Hesiod
Sales activity has a life of its own. And it's predictable. Most homes just on the market generate a kind of immediate "buzz" and interest that excites agents and bring in prospects. And, while there's generally a six week window of opportunity to maximize exposure to potential buyers (and their agents), the first three weeks are the most crucial. As you can see, there's a dramatic rise the first week, but activity begins to fall off after the second week.
What this means to you as a home seller is that you must hit the ground running - with the right price in place. The price may be the single greatest determinant in a successful sale. But, of course it's not the only one. Price should be placed in the context of marketing and other activity. The key is to set the right price from the start and front-load the sales and marketing effort.
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