Of course, there’s nothing stopping you from dropping your price later, but that can be a matter of too-little-too-late. You’ll want a comparative market analysis (CMA) so you’re as close to value as possible.
The Pricing Dilemma
Although pricing too high can be a mistake, don’t worry about pricing your home too low. Properties priced below market value will often receive multiple offers that will then drive the price up to market level. Pricing is all about supply and demand. Most agents will prepare a CMA for you, but you can also do one yourself.
The CMA: Pull Comparable Listings
First, look at every similar home that’s been listed in the same neighborhood as your property over the last six months. Appraisers don’t use comps that are older than three months, so you might want to narrow the time frame even more. Ideally, you’ll want to come in close to the eventual appraised value of your home.
Often Overlooked Details
Some finer points are easy to overlook when you’re comparing homes:
Pay attention to neighborhood dividing lines and physical barriers, such as major streets, freeways, or railroads. Don’t compare inventory from the “other side of the tracks.”
Compare similar square footage within a 10% variance up or down, if possible.Compare similar ages. One neighborhood might consist of homes built in the 1950s, and it might be situated right next to another ring of construction from the 1980s. Values between the two will differ. Make sure you’re comparing apples to apples.
Honestly assess desirability. You might be able to get away with tacking on a premium if you’re fortunate enough to own a dream home that will cause buyers to faint upon entering.
Check Out Sold Comps
Compare the original list prices of the homes to the final sales prices to determine any price reductions. Compare the final list prices to actual sold prices to determine ratios. Ideally, compare to at least three properties that sold at market value. Most local assessors’ offices will provide lists of sales, and some newspapers publish quarterly sales reports in their business and/or real estate sections. Adjust final sales prices up or down for lot-size variances, configuration, and amenities or upgrades.
Look for Withdrawn and Expired Listings
Pull the history of any expired and withdrawn listings to determine whether any of them were taken off the market and relisted. “Expired” means the term of the listing agreement ran out without a sale. “Withdrawn” means the listing agreement is still in effect, but the homeowner no longer wants to market the property. Add these days on the market back to the listing time periods to arrive at an actual number of days the properties were on the market. Look for patterns as to why they didn’t sell, and note any common factors they might share. What brokerage had the listing? Was it a company that ordinarily sells everything it lists, or was it a discount brokerage that might not have spent sufficient money on marketing the home?
Pending Sales
The ultimate sales prices of homes that haven’t sold yet are unknown until the transactions close. But that doesn’t stop you from calling the listing agents and asking them to tell you how much a property is selling for. Some agents will tell you, and some won’t. Again, make note of the days on the market. That can have a direct bearing on how long it will take before you see an offer. Examine the histories of these listings to determine price reductions.
Active Listings
Bear in mind that sellers can ask whatever they want to ask for their homes. It doesn’t necessarily mean that they’ll actually get that price. Tour these active-listing homes so you can see what buyers will see when they visit. Make note of what you like and dislike about the properties, as well as the general feeling you got when entering the homes. These properties are your competition. Ask yourself why a buyer would or would not prefer your home over any of these others, then adjust your price accordingly.
Square-Foot Cost Comparisons
The buyer’s lender will order an appraisal after you receive an offer, so you’ll want to compare homes with similar square footage to come as close to the eventual appraised value as possible. Appraisers don’t like to deviate more 25%, and they prefer to stay within 10% of net-square-footage computations. Comparable homes are those that are 1,800 to 2,200 square feet if your home is 2,000 square feet. Average square-foot cost doesn’t mean you can simply multiply your square footage by that number, at least not unless your home is average sized. The price per square foot rises as the size decreases, and it decreases as the size increases.
Market-Dependent Pricing
The next step after you’ve collected all of your data is to analyze it based on market conditions. Suppose that the last three comparable sales in your neighborhood were $250,000. Your sales price might allow some wiggle room for negotiation in a buyer’s market, but you’ll want to be close enough to the last comparable sale to entice a buyer to tour your home. You might need to price your home at $249,900 and settle for $245,000 to sell in that type of market. Conversely, you might want to add 10% more to the last comparable sale in a seller’s market. You can ask more than the last comparable sale, and you’ll likely get it if there’s little inventory and there are many buyers. That $250,000 home might sell for $265,000 or more. You might want to initially set your price at the last comparable sale in a balanced or neutral market, then adjust it for the market trend. Pricing at $254,500 would make sense if the last sale closed three months ago, but the median price has edged upward of 1% per month since then.
Help Is Available
Visit the Federal Housing Finance Agency’s website if you feel you’re in over your head. It offers various tools to help you along, including a House Price Calculator that can help you add in factors for appreciation since the time you purchased the property.
