How to Price Your Home Just Right Using Cold Hard Logic

More often than not, a bad list price is the reason for sky-high days on market, and the longer a house sits, the harder it is to sell.

To help you avoid the quicksand of overpricing, we sat down with Kenny Klaus, the #1 real estate agent in Mesa, Arizona.

He said, “If you can price it and show it right, you can create more urgency day 3 on the market than you can day 33, or day 63, or day 93.”

Price the house wrong, and you look at price reduction after price reduction (which could attract lowball offers down the line) and months of extra costs, not to mention, as Klaus says, the “disruption of putting your house on the market.”

With cold hard logic and the help of a top real estate agent, you can price your home right the first time. Here’s how.

Source: (Tirachard Kumtanom/ Pexels)

How Do You Know If An Agent Priced Your Home Too High?

When you set out to interview real estate agents, every agent will quote you a list price. The trick is to know which list price is over market value, under market, or right on target.

If you hope that an above-market list price up front will get you more in the long run, you should reconsider. Klaus told us about one client who made that fatal mistake:

“We’re actually dealing with one right now. My brother went and did the listing appointment and they went with another agent and priced it $20-$25,000 more than what we said. They did two price reductions and fired the agent.”

Even though it might seem exciting to get significantly more for your home than you originally thought it was worth, overpricing it at the beginning is not the way to go. The thing is, it’s not always easy to know which agent highballs you and which agent gives you an honest list price based on the market.

Don’t let your emotions get in the way here. To know if your current agent or an agent you interviewed priced your house too high, there are several tools you can use. First, go take a look at our home value estimator. The tool gives you an average of what your house is worth today based on 5 different data providers.

You can also figure out your home’s fair market value with a comparative market analysis. A comparative market analysis, or CMA, looks at the sale price of recently sold or pending homes similar to yours in your neighborhood. Based on what these comparable houses sold for, you can get an accurate read on what you should list your home for in the market today.  We’ll go into how you can run your own CMA below.

When an agent tells you their ideal list price for your home, you should always ask them for a copy of the CMA they ran. The CMA includes a detailed compilation of each house they used to come up with your list price. Take a look at it to see how they got to your valuation. This is the best and fastest way to know if an agent overpriced your house.

Why a Bad List Price Could Cost You Thousands of Dollars

If, in an ideal world, your house could sell above its fair market value, you still should not list it for higher than the market can support. Even if you got a buyer at the high price point, the home might still appraise for fair market value. In that case, you’ll have to lower the price anyway so that the buyer can get a mortgage loan. Or, the buyer will have to come up with cash for the difference.

Plus, if your home is priced too high, buyers may come in with lowball offers in attempt to get the home right at or right below market value. The house may also sit on the market for longer, and the higher the days on market, the more skeptical buyers will become of the condition of the home. You could end up in a situation where buyers ask your agent, “What’s wrong with the house? Why hasn’t it sold?” for fear of deeper problems like a bad neighbor, loud freeway noise, or a damaged foundation.

All in all, you’ll simply make more if you start off at fair market value from the beginning. Klaus adds, “Statistically people end up netting less list price to sales price once they have to start making adjustments from where they should have just listed it in the first place.”

Your best bet is to list your home at a price that’s based on what a CMA says the market can support today. Here’s how you run your own CMA.

Price Your Home Right With a Comparative Market Analysis

We sat down with a licensed real estate agent and asked him how he would run a CMA if he didn’t have the tools of a real estate agent. This is how he walked us through the process.

As an example, say you have a 3 bedroom, 2 bathroom 1,100 square foot single family home.

1. First go onto Zillow’s website. Then, search your home’s address.

2. Go to “Listing Type” in the top navigation and select only “Recently Sold.”

3. Then, select “Bedrooms,” and put in the number of beds your house has. Next select “Home Type” and choose the type of home you have. Now, go under “More” and pick the number of baths and set a square footage range. To set a range, subtract 200 square feet from your house’s for the minimum and add 200 for the maximum. Click “Apply.”

Source: (Zillow)

Pay close attention to the number of beds, baths, and square footage in each comparable house you choose. The more similar those numbers are to your home, the better. You should also aim to find the homes that sold as recently as possible. Find a house that’s pending? Even better. Pending houses will give you by far the most accurate analysis, so long as you contact the listing agent on the deal for the final sale price.

Source: (Zillow)

4. Select the home nearest yours and see when it sold and what it sold for. After you find the closest recently sold or pending property, aim for houses within a mile of your home. You need 3-4 houses to make your comparative market analysis report. If you don’t see many results, you can always expand your parameters.

5. Once you have 3-4 homes, you should create a price range. In this example, with the homes we found, a good listing price for our home would be between $275,000 and $300,000.

Learn to Read Market Conditions and How They Affect Your Home Sale

The temperature of the current real estate market will absolutely affect your home sale. That’s true on a national, state, city, neighborhood, and even street level. Make sure that you’re up to date on the most recent national and state-wide real estate market news.

Take a look at these resources to understand the real estate market and price your home right:

NAR Pending Home Sales

The National Association of Realtors (NAR) releases a “Pending Home Sales” report every month to help you get a pulse on how many homes are in contract nationwide. While this report does not offer local insights, its percentage of pending homes is an important forward-looking indicator of the market.

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NAR Existing-Home Sales

NAR also releases an existing-home sales report, which keeps track of home sales that have closed across the U.S. This report shows where the percentage of closed sales falls relative to the previous month and year. It also gives you an idea of how many months of inventory there are currently. “Months of inventory” just means the amount of time it would take for every house on the market to sell. 6 months is considered a “balanced” market.

S&P Case-Shiller Home Price Indices

The Case-Shiller home price index tracks the value of residential real estate by examining any changes in prices. You can look at the price index nationally, but you can also sort by city if you live in one of 20 areas. This includes major cities like Denver, San Diego, and San Francisco.

CoreLogic Home Price Index

CoreLogic’s Home Price Index predicts trends in home prices and gives insights on current trends. You can see these at the national and state level, and the report does include information for a few metro areas, including Los Angeles, Las Vegas, and Houston. You’ll also be able to look at a map that features 100 metro areas and find out if real estate in your area is under or overvalued.

CoreLogic Loan Performance Insights

CoreLogic’s Loan Performance Insights reports on the current percentage of defaulted mortgages nationwide, statewide, and for a handful of metro areas.

BLS Jobs Report

The Bureau of Labor Statistics’ report looks at unemployment rates nationally. A strong job market correlates to a strong housing market.

ADP Employment Report

Another way to get a reading on the jobs market, the ADP employment report shows the number of new jobs by company size and industry.

Census Bureau New-Home Sales

The Census Bureau’s report on new home sales provides data on the number of new construction single-family homes sold across the U.S., the median sale price, and new constructions currently for sale. You’ll also see year-over-year percentage fluctuations.

Census Bureau New Residential Construction (home starts, completions and building permits)

This report provides data on the number of completed new constructions and new constructions in progress.

Check In With a Top Real Estate Agent You Trust

After you’ve done your own research, talk to your real estate agent about the status of your local market.

Local could mean large scale, like the San Francisco Bay Area, or small scale, like the Castro neighborhood within San Francisco. There’s a big chance that what’s happening your specific neighborhood is different than what’s happening in your city as a whole. That’s when you need to chat with your agent to get a real pulse on what’s going on. This is also why it’s essential to pick an agent who specializes in your immediate neighborhood.

talk to your real estate agent to price your home right
Source: (Eduardo Santos/ Unsplash)

After you’ve figured out a solid range for your home’s fair market value, you should feel comfortable working with a top real estate agent whose CMA is close to yours. Your agent will then take the range and come up with a list price he feels is market ready.

Remember that couple from earlier? Klaus said, “Now they’re listing with us at a price that we feel, based on black and white—not emotions, not what their neighbor said, not what their best friend’s co-worker’s spouse told them to list it for, not what Zillow listed it for, but truly what the market is based on adjustments to the property.”

Article Image Source: (NeONBRAND/ Unsplash)

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