As a seller you have to find a willing buyer, ensure you understand what the fair market value for your home is, and then market your home in a manner that will enable it to sell at the top end of your real estate agent’s predicted price range.
Easier said than done, right?
Luckily, there are 3 primary ways to assess your home’s fair market value and get started in the selling process.
Let’s make sure we’re on the same page first.
What is “Fair Market Value,” Really?
A price at which buyers and sellers with a reasonable knowledge of pertinent facts and not acting under any compulsion are willing to do business
In plain english?
Fair market value is how much you can list your house for based on its floor plan, location, condition (to name a few data points) and the state of the local market. So, with that–let’s get started.
1) Conduct Your Own Comparable Analysis to Determine Fair Market Value
If you’re a spreadsheet jockey (or just generally love numbers, because who doesn’t?), you’re in luck. There are plenty of publicly available data sources out there that will allow you to calculate the value of your home using an analysis of comparables. Comparables are homes similar to yours that have recently sold and can help you assess the value of your own house.
To begin, you’ll first need to collect as much data as possible about recent home sales in your neighborhood. You will want to collect the following information at a minimum:
- Date sold
- Number of square feet
- Number of bedrooms and bathrooms
- Total acreage (including both the interior and exterior of the home)
- Year built
This information can typically be found on certain websites like RealtyTrac, on your local tax assessor’s website, real estate portals, or even your weekly newspaper circular (those still exist?!). Make sure to limit your search to homes that have sold within the last six months and keep your neighborhood area as tight as possible (as prices can fluctuate dramatically the further you get from your local area).
Once you have compiled data from 3-5 homes, you’ll want to create a spreadsheet like this:
|Address||Zipcode||Sold Date||Sold Price||Total sq ft.||Total Acreage||# of Bedrooms||# of Bathrooms||Year Built||Cost/sq ft.|
|House A||234 Spring Street||92345||4/5/16||$252,000||2200||4000||4||3||1965||$115|
|House B||465 Cherry Ave||92345||5/13/16||$232,000||2000||3800||3||3||1970||$116|
|House C||978 Woodside Dr||92345||4/28/16||$289,000||2400||4500||4||2||1962||$120|
|House D||123 Laurel Ave||92345||6/21/16||$240,000||1800||3600||3||2||1988||$133|
|House E||775 Mission St||92341||6/4/16||$212,000||2000||3500||4||3||1954||$106|
|Your home||525 Peach Dr||92345||?||?||2300||4000||4||2||1962||?|
So, the question is: what is my home worth?
Let’s Play a Round of Fantasy Fair Market Value Comps
Your “Home” (525 Peach Dr) vs. Houses A and B
Your house is closest in size to House B with similar square footage and acreage. House B has one less bedroom, but one more bathroom. Your house is 8 years older than House B. You share quite a few similarities with House A but house A has the same number of bedrooms as you and an additional bathroom. That bathroom adds value.
Your “Home” (525 Peach Dr) vs. Houses C and D
House C and D were sold at the highest cost/square foot, but also note that House D is the newest house (and therefore perhaps less repairs are needed) and House C has the most external acreage.
Your “Home” (525 Peach Dr) vs. House E
House E is a great example of why you should not look at comps outside your own zip code. Notice the price drop? Include that comp in your analysis and you could end up with a result that is thousands of dollars under your home’s true value.
A quick analysis here suggests that your home may be somewhere in the $113-117/sq. ft range, which multiplied by the number of square feet in your house, would give you a fair market value of $259,900-$269,100. Easy, right? Sort of.
2) Data Can Never Replace the Knowledge of an Expert Local Real Estate Agent
You need to find the top local agents in your area and get competing proposals. These proposals often take the form of a comparable marketing analysis (aka CMA). The best agents will conduct some basic comparable analysis and account for factors such as recent renovations, schools and walkability, new city ordinances, etc. They can also provide quick curb appeal tips to increase your home’s value prior to sale. These agents often have access to MLS data which provides them with greater insight into your local area.
You may also try going to a local appraisal management service, however these companies will often charge a fee and most often do not provide a result that is meaningfully different from a qualified real estate agent (in fact, in many cases, the appraiser will provide a more conservative estimate).
3) Try Your Hand With an AVM Model to Determine Fair Market Value
If accuracy isn’t your highest priority but speed is, there are numerous Automated Valuation Model (AVM) services that can help you triangulate to a fair market value for your home. AVMs, or automated valuation models, are predictive models built on millions of home transactions. These models attempt to guess the value of your home by using hundreds of variables. These predictions are often limited by the availability of accurate information (for example, does the AVM know that you just remodeled your bathroom or that your neighbor’s leaky roof needed to be replaced?), so use them with a heavy grain of salt.
ZEstimate — Zillow’s AVM which claims to have a median accuracy rate of 6%
HouseCanary — an appraisal report service with stated 4% accuracy
Eppraisal — A platform AVM used by numerous external companies and real estate agents
HomeJunction – A B2B data provider and application developer
RealtyTrac — A multi-faceted real estate data provider
One Final Note:
We would advise you not to spend hours and hours with advanced calculations to assess your home’s fair market value. If you own a single family residence almost all homes are sold utilizing some type of comparable analysis.
If you find yourself lost in a discounted cash flow analysis, internal rate of return analysis, or replacement cost breakdown, take a deep breath and stop doing math.
Go back to the basics and chat with an agent or check out our home value estimator.