In the last few weeks I’ve been dealing with quite a few situations in which I’ve been called upon to recommend a listing price for a home. This is not shocking; it is, of course, a large part of my job. However, because I entered the real estate biz at such an unusually high activity point in the market, I am now still really getting a handle on the ins and outs of pricing a house in a more ‘normal’ market. Let me tell you, it’s not a simple thing.
As a home owner thinking about selling your home, I think it’s important to understand that pricing your home is more of an art than a science. First you have to think about what is most important to you in the situation. Are you in a position where you need as much money as you can get from the house, but have flexibility with your moving schedule? Do you need to get out of the house as quickly as possible and can afford to get a little bit less? Most likely you are somewhere in between. You have some time constraints and would like to get as much out of the house as is comfortably possible. This is where a sliding scale starts to come into play.
When someone wants to talk to me about maybe selling their home, I put together what’s called a CMA (comparative market analysis). Basically, I start by running a search on the subdivision the house is in on the MLS (multiple listing system). I look for houses that have sold or are pending sale in the last six months that are similar to the house I’m trying to price. If I’m lucky I will find four or five properties within the subdivision that have sold recently and are very similar on paper to the house I’m trying to price. If I’m unlucky, I will have to go outside of the subdivision, but within a mile of the subject property to find comparable properties. Either way, ultimately I will end up with an approximate range of where to sell the house. This process is usually done before I’ve actually seen the house, so the actual condition of the house is something that will be used to figure the listing price. We then will take into consideration the things I mentioned earlier, time and financial needs. All of these things will go into determining a price for a house. And as you can tell, most of them are quite subjective.
A last hurdle is, of course, the appraisal. The appraisal may happen after the house is already under contract, but it’s important to keep it in mind through the entire process. Your leeway in pricing only extends as far as the house will appraise. If you can’t get it to appraise for what you’ve sold it for, you have a big problem. This is why we always need to stick to the comps and stay within the range, unless the buyer is willing to waive the appraisal. But, that is a different story for another time.
It’s not vital that the seller understand every detail of pricing their home, but it’s good to have a general picture of the process. Sometimes I wish it WAS a science.