You raised your family in this house. You’ve put a lot of love, money and sweat into your home, so it’s natural to want to learn how to price your home for sale so you can get the most you possibly can for it.
Set your price too high and you risk it sitting on the market without any bids. According to HomeLight’s Top Agent Insights 2016 Home Seller’s Report, inaccurate pricing is the main reason sales fall through. Realtor Confidence Index December 2016 supports this statement citing financing issues (37 percent) and appraisal problems (19 percent) are the main reasons that 39 percent of transactions are delayed or terminated.
If you and your Realtor are at odds about your listing price, here are five steps to evaluate if you’ve narrowed in on your best sale price.
Step 1: How to Price a House: Know How an Appraiser Values Your Home
A home appraiser acts as a third party. They’re best suited to make an objective estimate of your home’s value since they don’t work for you or the buyer.
Two roads lead to this number. The cost method is the first; it means an appraiser adds up all the costs involved to build your home — land, construction and improvements — and then subtracts the depreciation. New homes often use this method. Don’t assume you’ll make back all the costs of your renovations in the sale of your home.
The sales comparison approach, the second method, is much more commonly used and means your house value depends on other comparable homes in your neighborhood. Read more about the nitty-gritty of the home appraisal process in our home appraisal guide.
Right now you’re probably thinking: “But… this all makes it sound like it’s not an exact science…” While a simple equation — +$5,000 for detached garage, +30,000 for pool, -3,000 for backing up to busy street — sure would be nice, it’s just not so easy. Appraisers do work off a system of assigning values like these, but values differ from city to city, and neighborhood to neighborhood, and are based on the market.
Before the appraisal process even starts, you should get an estimate from an online home value estimator tool like HomeLight’s home value estimator to give yourself a ballpark of what your home might appraise for.
Step 2: The Best Home Renovations to Increase Value
Some features consistently increase the value of a home. (Translation: here’s how you can get a little more for your home when you sell it.) Consumer Reports details them in their article on how to boost home value, but here’s a snapshot of what makes your home worth more in the eye of a buyer.
- An updated kitchen — stainless-steel appliances, a vent hood or modern countertops. If you are interested in updating your kitchen, you can read more in our guide to effective kitchen update ideas.
- A floor plan designed for function — think finished basement, laundry room on the same floor as the bedrooms, a home office. Bonus points if it’s designed with age in mind (single-story, handicap accessible, etc.)
- Eco-friendly and smart — new windows, LED lights, a tankless water heater or a smart thermostat.
- Simple and strong materials — hardwood floors wear well, metal roofs last long. Nobody wants to fix a broken A/C unit the first summer they move in.
- Aesthetics — a little paint goes a long way, as does a deep cleaning and some professional staging.
We also made a list of the home renovations that add value and get you a return on your investment. We found that curb appeal landscaping upgrades have the best return. You can read more on what home renovations add the most value in our article.
There’s also a list of stuff that makes a buyer less likely to see the value in your home. House Beautiful provides more in an article on mistakes that could lower the value of your home but the basics are as follows:
- Paint — “Wait, I thought you said paint increases the value!” It does, unless it’s the wrong color. You’ll be hard-pressed to find a buyer who wants the purple house on the corner. Stick with appealing, neutral colors.
- Poorly planned or unmaintained landscaping — they call it curb appeal for a reason. You are turning off buyers if there are weeds, dead shrubs or a tree clearly uprooting wall or house foundation.
- A disappointing entry — you want to be greeted with a nice front door, a welcome mat and hopefully the porch light on when you get home from work, and so do buyers.
- The small stuff — crooked outlet covers, cracks in the floor, misaligned baseboards and shoddy workmanship lose major points among the details people.
Step 3: What’s the Home Value in My Area? Conducting a Comparative Market Analysis
A Comparative Market Analysis (CMA) looks at similar homes in your area and what they sold for (and when) to give you a solid understanding of the state of your local market and how much homes similar to yours are selling for right now. A Comparative Market analysis uses the sale price of other homes in your area to give you the ideal list price of your home. This method is also outlined in our article on how to determine a fair market value for your home.
CMAs vary — from a handful of homes in the neighborhood to a hundred homes within a three-mile radius. Your real estate agent will conduct your CMA for you but if you’re a visual person and want a five-minute DIY version, we created a quick way to map it out.
To start, you’ll need to know several details about your home:
- Square footage
- Lot size
- Number of bedrooms
- Number of bathrooms
- Garage space
- Year built
Then, do a search on a website like RealtyTrac to get a list of homes in your neighborhood (or within that 1-3 mile radius) that have sold within the past 2-3 months. The homes should have a similar square footage, lot size, number of bedrooms, bathrooms, garage space, and year built as your home. They should also be the same story as yours, i.e. look for other homes that are one story if you live in a ranch style.
RealtyTrac will give you detailed information about the properties, including all of the information above, the real estate agent who sold the listing, and even a list of the properties RealtyTrac sees as comparable listings.
Only pay attention to homes that have been sold (no pending sales). Pending homes do not have a confirmed sale price, so the price could fluctuate before the home is off the market. We did an example of a Comparable Market Analysis so you could see what one looks like:
|Address||Zipcode||Sold date||Sold price||Total sq ft.||Total Lot Size||# 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||?|
Step 4: Understand the Psychology of Pricing
When you’re pricing a home, you’re not just accounting for what you put into it, you’re also throwing three other big factors into the mix:
- Time of year: The weather matters. Who wants to buy a house in Phoenix in July or in Minnesota in the dead of winter? The holidays are busy and expensive, making house-hunting a rarity in the year-end months.
- Inventory: New York City is saturated and popular, making real estate both valuable and hard to come by. When houses are in demand, prices go up.
- Interest rates: Home buying is more appealing and more affordable when interest rates are low. Low interest rates help drive younger homebuyers to the market.
Your real estate agent will be best suited to help you identify the right pricing model for your home but here are some things they might be thinking about as they help you narrow in on your listing price.
- Fill the gap: If there is a comparable house on your street that’s listed for $160,000, and two for $180,000, it may be beneficial to “fill the gap” by listing your home at $170,000.
- Don’t get lost in filters: Keep search filters in mind. Listing your home at $603,000 excludes your listing when searchers set their maximum price range at $600,000. It may be more beneficial to price at $599,900. This way you’ll be included in that filter and get more eyes on your listing.
Step 5: How to Price Your Home for Sale Smarter: Set Realistic Goals
Your home — where you brought your babies home or gathered for the last decade of Christmas dinners — is “just a house” to someone who’s looking to buy. It doesn’t (yet) carry the same value for them as it does to you. For this reason, it’s crucial to set realistic expectations.
You’re more likely to sell quickly and less likely to fall through if you set reasonable and attainable goals from the beginning.
Pricing a House High Has Pros and Cons:
Pros: You could get more for your house.
Cons: It could take longer to sell your house. It’ll keep attention for about 30 days but a listing after that period appears stale. Listing high could result in fewer offers and those may not be solid offers. Also, your home might not appraise for its list price, which means anyone taking out a mortgage against it won’t be able to.
Pricing a House Low Has Pros and Cons:
Pros: Your property might be priced more competitively, making for more traffic and potentially providing more offers to field.
Cons: Buying prospects may question why it’s priced lower than others (what’s wrong with it, anyway?). You may not make what you want or put into it.
Ultimately, the market value of your home is what someone is willing to pay for it. Since pricing it too high or too low is at your detriment, working with an agent can help you avoid real estate limbo. Working together is the most effective way to sell your home.