At HomeLight, our vision is a world where every real estate transaction is simple, certain, and satisfying. Therefore, we promote strict editorial integrity in each of our posts.
Some homes are trickier to price than others. Take the Belair, California mansion nicknamed “The Billionaire,” for example. Initially it was listed for $250 million. Months later, brokers representing the extravagant property dropped the price by an astonishing $62 million and told CNBC that in their defense “there is no comp for a house like this.”
“The Billionaire” marks an extreme case (in fact, the mansion was the most expensive listing in the country at one point). But everyday sellers, too, can be an exception to the rule when it comes to pricing.
So for every challenge that makes pricing your home more difficult, whether it’s a remote location, volatile real estate market, or special features, we’ve culled together the best solutions to nail down market value—no matter how unique the property.
Challenge #1: There’s a lack of nearby comps.
An experienced agent could price your average dwelling smack dab in a residential neighborhood or cookie-cutter development with a cup of joe and 10 minutes between house showings.
Compare that to the challenges of pricing outliers: those rural country estates in the middle of nowhere or luxury homes that bear little resemblance to their neighbors’ average homes.
Between these two different types of pricing situations, comps (or a lack thereof) make all the difference. The question for sellers pricing homes without comps is: How do you place a puzzle piece when there’s no box to go off? That’s when you and your agent will have to get a bit more creative.
But let’s back up a bit. In the real estate market, “comps” refer to homes that sold within the last 3-6 months and are similar to yours based on a number of basic criteria, including location, size, age, and condition, among others.
In a comparative market analysis (CMA), an agent gathers up as many as 10+ similar properties within a certain neighborhood to come up with a range of values, compiles interior and exterior photos to guide their research, and makes adjustments to your home’s price based on how it compares in upgrades, amenities, and features.
If there aren’t many recently sold homes near yours that mirror your own property’s characteristics, you can see how it’d be more difficult to determine the fair market value of your home. So what are your options if this is the case?
Pricing solutions for an absence of comps
If a lack of recently sold comparable homes is the issue, you’ve got a couple of options. Let’s dive into them:
Solution 1: Expand the pool of comps either by location or time frame.
Note that it’s ideal if comps come from an accurately defined neighborhood, but when that’s not an option, your agent might have to use a larger geographic radius. In the case of rural areas, the nearest comp could be miles away but will at least provide some baseline to work from. Alternatively, an agent might opt to stretch the definition of “recently sold” back to 6-12 months (rather than the ideal 3-6 months) to find comparable properties.
The difficulty is that these irregular comps will have additional variables to account for in an analysis and require more manual adjustments to nail down a range for your property.
Another option your agent may use is to look at homes similar to yours that were listed in a specific timeframe, but have not yet sold or were withdrawn from the market.
By looking at data available on the MLS (Multiple Listing Service)—recent upgrades to the home, offers that were made but either not accepted or withdrawn—your agent may be able to find additional homes that would not ordinarily show up as comps.
Solution 2: Get a pre-listing appraisal.
“In instances where you have an outlier where there’s not a lot of information, what I would suggest or propose to sellers is that they pay for an appraisal,” says Aaron Novello, a top-selling agent in Tamarac, Florida. “Then we can start at that number and ultimately test it. The marketplace speaks to us quickly in terms of showings and offers.”
He adds: “If the buyers are not seeing value, then we’ll know that. We’ll get showings and no offers or very few showings, if any at all. And if that happens, we can make an appropriate adjustment.”
Check out HomeLight’s 7-step guide for how to get a seller’s appraisal you can trust.
Challenge #2: Your local real estate market is in flux.
If your home is in a volatile or fluctuating market, there’s another problem that can make pricing your home challenging: even recent comps may not accurately reflect your home’s current value.
When prices are on the rise, for example, comps that sold 6 months ago may have gone for a much lower price than your home is worth today. And vice versa—if the market is going down, your home’s comps could have sold for more than your home is worth today.
“In South Florida, there’s a lot of demand for homes that are priced between $200,000 and $300,000,” Novello says. “So when you put a home on the market at that price point, you’ll get maybe 5 offers. That forces people to compete, and raises the price.”
Given a few months, that level of competition can have a drastic effect on the real estate market. The biggest challenge in a rising market then becomes whether the house will appraise for the price at which it sold.
Pricing solutions for changing real estate market
To settle on a price when the market’s changing, your best options are the following:
Solution 1: Only pull the most recent comps.
Narrow the window for qualified comps to only those homes sold in the past few weeks or at most, the past month. This will help prevent the risk of using dated comps that no longer reflect current market price trends.
Solution 2: Be prepared to back up your home’s sale price.
In the event that your house generated multiple offers that drove up the price, you’ll want to take every possible step to maximize your home’s appraised value.
This includes presenting to the appraiser proof of upgrades or renovations to the house and receipts for new appliance or HVAC installations. You’ll also want to get your place ready for the appraiser’s onsite visit like you would for a house showing: tidy up the yard, declutter countertops, and deep clean for a great impression.
Solution 3: Make sure the appraiser has access to your agent’s comps.
Another way to help justify a home’s sale price to the appraiser is to be sure they have access to the same comps that your agent used in their CMA. One missing comp could mean the difference between you and the appraiser seeing eye to eye.
Solution 4: Have a game plan in the event of a low appraisal.
Ultimately if high demand for your house drove up the price beyond market value, there’s a chance that your appraisal could come in the under contract value. If you decide not to challenge the appraisal, then be prepared to negotiate with the buyer, whether you ask them to bring additional funds to make up the difference in value or agree to lower the sale price.
Challenge #3: Your home is unique in terms of positioning or location.
An appraiser will take into account when your home was built, the condition of the roof, the size of the lot—but other factors that impact value are more nuanced. This is especially true in terms of location and positioning.
A house could be identical in size, shape, and condition to another property down the block… yet worth at least 10%-15% less due to its positioning next to the freeway.
Or let’s say your home is built near the water. There are scenic benefits that will raise the value of your home, but there are also issues like susceptibility to floods that could lower the home’s value.
Homes that are built on a slope, located near an airport, or back up to a main road face create issues when determining an accurate price.
Solution: Bring in the professional expertise of an appraiser or find an agent with hyperlocal experience.
This is another situation in which the help of an experienced, professional appraiser can be helpful. By getting an appraisal before your home goes on the market, you lower the probability that you’ll overprice your home and end up having it sit on the market for months.
Another option is to find a real estate agent with extensive experience in your area, particularly with selling homes that have unique features.
“I’ve sold over a thousand properties, so with that experiential knowledge, I kind of know, plus or minus, what an appraiser will give you for certain things,” Novello says. “From that we come up with a realistic range. It’s about working with probabilities—what price is the most likely to give you your desired outcome, within your desired timeframe?”
Challenge #4: Your market doesn’t have enough qualified appraisers.
When you’re working with a unique property, a pre-listing appraisal can help you accurately price it correctly from the start. But what if there aren’t many experienced appraisers in your area? How do you ward against an inaccurate appraisal?
According to Bankrate, inexperienced appraisers are a prevalent issue in the home-selling space, as “most lenders work through appraisal management companies, or AMCs, whose pool of residential appraisers includes those with limited training or little familiarity with the geographic area being appraised.”
Pricing solutions for a lack of experienced appraisers
Although you won’t have control over who the lender financing the deal selects as an appraiser, let’s review a couple of ways to make sure your appraiser is qualified to provide an accurate opinion of value should you choose to get a pre-listing appraisal.
Solution 1: Vet your appraiser candidates with screener questions.
American Home Appraisers advises asking your appraiser “screener” questions to make sure you don’t end up with someone who’s untrained or inexperienced. These include things like:
- Where is your office located?
If it’s located far from your home—more than 50 miles or so—there’s a good chance that the appraiser is not familiar enough with your geographic area to make a truly accurate appraisal.
- How long have you been in the business?
Try to find an appraiser with at least 5 years of experience in the business.
- Are you licensed or certified?
Licensed appraisers have the lowest level of authorization by their state, and are generally not allowed to appraise complex properties or highly valuable properties for loan purposes. Certified appraisers have the highest level of authorization offered by their state, and are allowed to appraise any property at any value. This doesn’t mean you should discount licensed appraisers. Someone who is only licensed could turn out to have the most relevant experience for your home type and location. It’s simply something to be aware of when making your selection.
Solution 2: Ask your real estate agent for an appraiser referral.
If you’re working with a top local real estate agent, the agent will likely have appraisers that they already know and trust.
Challenge #5: Your home isn’t like the others on your block.
When your home is significantly different from the others around it—maybe it’s the nicest home on the block, or the oldest, or the only original house in a neighborhood full of remodels—comps can give you a good range in which to price your home. But nailing down that exact number can be a challenge.
Pricing solutions for your unique home
If you’ve got a unique home, review these solutions for how to keep your pricing on track.
Solution 1: Let your agent do some deep MLS research.
Using the MLS (multiple listing service), your agent may look at homes that mirror yours in characteristics or condition. If you’ve got a teardown, homes in the area that need extensive repairs can offer clues. If your home features original moldings, properties with historic interior design features could be the key to locking in the right price.
Solution 2: Don’t assume your updates will give you dollar-for-dollar returns.
One thing Novello warns against in situations like these, however, is “the endowment effect,” which is a psychological effect that makes people value something more simply because it’s theirs.
Basically, it leads home sellers to overvalue features like updated kitchens, renovated bathrooms, and other improvements that they’ve made to their home.
“I find certain modifications, like bathrooms, flooring, kitchens—they do make a difference,” Novello says. “But sometimes people think, ‘I’ll put $30,000 in and get $100,000 out. And that’s rarely the case.”
So while your home may indeed be different than those surrounding it, it’s worth working with your agent to really examine those perceived differences. It may turn out that your home is a lot more comparable to its neighbors than you think.
Article Image Source: (Tobias Bjørkli/ Pexels)