Determining Fair Market Value and Listing Price
Selling your House
Determining Fair Market Value and Listing Price
Now that you have decided to sell your house, it is time to determine the list price. It is essential to list your house at the right price and it is important to get it right the first time. The pricing of a house is a major component in ensuring that your home sells quickly.
There are several ways to determine the market value of your house, including an Automated Valuation Model (AVM), a Comparative Market Analysis (CMA), and a formal appraisal. An AVM is an electronic home value report generated by entering your property address on a website such as Zillow (a 'Zestimate'). Zillow recommends that you supplement this information with a CMA from your real estate agent or an appraisal from a M.A.I. Appraiser, as these estimates may be inaccurate. Typically, AVMs and CMAs are available at no cost; a professional appraisal costs between $300 and $500.
Appraisers define market value differently than real estate agents do. Appraisers determine the value of your home based on its condition, location, and an analysis of sold properties in your area. In short, they are looking backward to use data they can document. A CMA is generated by real estate agents who know what the market is like right now. They know if the market is hot, or if it's not. They can see what is under contract but not yet closed and what was taken off the market unsold. An agent is looking to the future, taking into account comparable sales, pending sales, currently listed prices, market statistics, average time on the market, and available inventory, in order to predict a future selling price. For that reason, a qualified local real estate agent will generally outperform appraisers in anticipating the near-future market price of a particular home using a CMA.
Here are some things to consider to determine fair market value and decide on a listing price for your house.
Abandon you Person Bias: In order to determine the market value of your house, you must objectively establish what someone else would pay for it. This means setting aside your emotional attachment to the many wonderful memories you have shared in your house. Some things to consider when determining the price of your house: total square footage, floor plan, construction quality, condition, amenities, lot size, topography, view, landscaping and neighborhood.
Consider a House Inspection: A very important step that many home sellers skip is having their homes inspected by a licensed home inspector. There may be structural or mechanical deficiencies in the home that you are unaware of. Any potential buyer will find these when they hire their own inspector and may become disillusioned and withdraw their offer. You can head this off at the pass by making some repairs before listing your house. Also consider that completing some repairs before listing the house may also significantly increase the asking price.
Educate Yourself: Visit local open houses and compare the location, condition, size and amenities of these houses to your own as objectively as possible. If your house is located in a neighborhood that is highly in demand, you will be able to get a higher price than you can for the same house in a less desirable area. A house that has been well-maintained will show better and, therefore, is likely to sell more promptly and for a higher price than one that needs work. When a house offers amenities that are currently popular in the marketplace, it will invite a higher price.
Get a Comparative Market Analysis from your Real Estate Agent: Your real estate agent will give you a full CMA after examining, among other things, what comparable houses have sold for in your neighborhood in the recent past. Drawing upon knowledge of other houses within the area as well as the current and projected real estate market, he will determine an approximate value of your house that you will then use together to determine the final listing price.
Calculate the Price per Square Foot: Using homes from the CMA, divide the list price by the total square footage. This will establish a baseline value per square foot of homes in your area. Multiply this number by the total square footage of your house and adjust based on amenities.
Consider Market Conditions: How is the economy? Interest rates? Local job market? What season is it? Homes tend to sell more quickly in the spring and summer months than in the winter because people prefer to move during the longer warmer days and between school years. Are prices of homes in your neighborhood on the rise? Are they selling quickly? Check your CMA to determine the days on the market for each comparable house sold. When real estate is booming, houses may sell in a few days. Ask your real estate agent if it is a buyer’s or seller’s market.
Offer Incentives: Be creative and flexible in meeting the buyer’s needs. For example, offering a short escrow will attract buyers who want to move immediately. You might propose paying the buyer’s closing costs to seal the deal. Cash incentives will help first-time buyers who need assistance with their down payment.
What is your payoff?
Look at your mortgage statement and estimate the payoff of your loan. Your agent will run an estimated closing costs sheet, which will include payoff of the original loan as well as other fees which can include a broker’s commission, transfer taxes, documentary stamps on the deed, title insurance, and prorated property taxes. Once you and your agent determine that the market at least supports the price you need to pay off the loan and closing costs, you will then use the CMA to help you set the listing price. As stated above, your agent is an expert on the current and future market and will help you set an appropriate price.