FAQ - How can I determine the market value for my house?
This is the second post of a series in an FAQ format that I hope will help would be sellers better understand the real estate process that they are about to go through. There will be a follow-on series for real estate buyers.
The Market Value of Your House -
Hopefully you have already taken the advice from the first post in this series and found a GOOD Realtor® to help you understand what needs to be done to get the house ready to list. That same Realtor is the key to determining the best market value at which to list the property to assure a successful outcome. A successful outcome is one that gets the seller the maximum amount that the market will support, as quickly as possible and with the least amount of hassle.
So, how do you determine the market value for your house? Well, here are some things that do not play into that determination –
- What your neighbor down the street got for his house last year.
- What you Dad or Uncle Bob tell your they think it is worth.
- What a friend at work sold his similar size house across town for last month.
- What you saw in the paper that another house in town with the same number of bedrooms just sold for.
- What the Zestimate says it’s worth on Zillow.
- What you “need” from the sale.
None of those things can give you an accurate estimate of what you house is worth on the market right now. Why Because they don’t reflect the market that you will be competing in right now and they do not take into consideration what condition your house is in right now as compared to those houses that sold in the past. If there have been several sales in your neighborhood over the last 3-6 months, that may give you a good ballpark idea of the potential value of your house, but it is only a ballpark. Only a Realtor can evaluate what your house might be worth today in the market in which it will be competing.
Just how big is the house?
One of the factors that plays a big role in determining the market value is its size in square feet. There are many differences within the various groups who may try to determine the size of houses for a variety of reasons. The original builder, local tax assessors, insurance agents and realtors may all come up with different figures for the square footage of the same house. The original assessment visit may be the only time that the house was measured for the Public Records Database (PRD) which is what most people (including most Realtors) use when ask about the size of a house. One other thing that happens often is that owners add square footage over time (some with and some without building permits) that don’t get recorded in the Public Records Database. If there is any doubt as to the size or differences between what the PRD record says about the house and what the owner says, your Realtor should take the time to measure the house.
A GOOD Realtor will know how to measure the house properly and probably will ask you to help
(you can hold the other end of the measuring tape). Even then, the Realtor will have to make some judgement calls about things such as how much of the second floor space to include, if the house is a
Cape Cod style, with dormers and slanted roof line ceilings in the upper floors. The Realtor should almost never include any of the basement square footage in the stated size of the property. There are exceptions to that rule, if three of the four side of the basement are above grade; however, that is rare and just because the basement may be a walkout and may be fully finished, it should not be included in the stated square footage of the house. There is a place in the comments to talk about the finished square footage of the basement. Bedrooms that are located in the basement are also not officially counted as bedrooms in most places. In many places they would be considered to be illegal anyway.
Comps – really?
Your Realtor should do a thorough analysis of the local market and look at houses that are similar to yours that have sold within a reasonable distance from your address, as well as homes that are currently on the market. They will try to find sold examples that are within 3 miles of your home and that have sold within the last 3-6 months. Usually they will try to find similar sold and active homes in the same school district. You will hear the word “Comps” used by some agents. That stands for
houses that are Comparable to your home. I tend to use the word “similar” instead of Comps because neither I, nor most other Realtors, do the level of detailed analysis or site visits that an appraiser goes through to insure that a house is really comparable to the house that I’m listing. I use factors like the square footage, number of bedrooms and baths and other amenities like garage or no, finished basement or no, materials and finishes, and the 3-C’s from yesterday’s post – Condition, Clutter and Cleanliness. If I’m lucky, I may have been through some of the similar homes that are on the market, so that I have a better feel for the competition; but, many times I just have to depend upon the MLS listing information and the pictures that might be posted on line about those homes. I do generate a bunch of statistics so that I can see the average and median sold and active prices. Those statistics help define the “ballpark” that your house will likely play in and the competition that it will face.
What adds and what detracts from Market Value?
When I visit a home that is a potential listing I look for the things that I know will add to the market value or may detract from that value. I usually include a Franklin Chart in my Market Analysis report back to the owners. That chart lists the Pluses and Minuses that I saw and that I believe that potential buyers will see in the house. Those pluses and Minuses obviously add or subtract from the perceived value of the house. I go over those pluses and minuses in detail with the would–be seller. Many of the minuses are things that the seller might be abler to correct before putting the house on the market; however, some minuses are so “baked-in” to the house that they cannot be changed. The architecture
of the house is one such item. Houses that are ranch style or colonial never seem to go out of style and these days the Cape Cod style house is the builders’ and buyers preferred style. But, what about split level houses or raised ranch styles. Those style 60’s and 70’s and into the 80’s; but they have fallen way out of favor with both builders and buyers. So, if a house is a tri-level or quad-level or maybe a raised ranch (also called a bi-level), it starts with one strike against it in the modern market. That is a negative that the owner cannot do anything about, but which does factor into the market value. Things like fresh paint, crown molding, granite counter tops, new flooring, updated windows, new furnace and/or water heater and other improvements/upgrades and updates all add to the value. Conversely, if those things have not been done, they detract from value.
The most common mistake that sellers make –
Overpricing is the most common issue that Realtors into and usually it’s based upon bad advice that the seller has gotten from someone else or from the seller’s belief that they “can always come down, but they can’t go up in price.” That is not only not true in many cases, but it actually hurts them, because they scare off good buyers by being overpriced. Seller will say that they want to leave themselves some “wiggle room”, so that they can negotiate; however, they end up just wiggling away on the market while other, well-priced homes are selling. Eventually they come down in price, but usually not before the listing has become stale and buyers have become suspicious that “there must be something wrong with the house, because it has been on the market for so long”.
The market doesn’t care what you need.
Sometimes I hear the phrase “I need this much out of the sale”; maybe because of the need to pay off a mortgage, or because the seller is trying to get enough from this sale to allow them to buy another home. In either case, I have to tell them that the market really doesn’t care what they “need” from the sale. The market only cares about what this property is worth relative to other, similar properties in similar condition. If you really can’t afford to sell your home unless you get that sale price that you “need” and it is significantly different than what your Realtor is advising you on the market value, perhaps you really can’t afford to sell right now.
Don’t make those mistakes; listen to your Realtor on pricing. He or she has you best interest at heart and is trying to advise you on a price that will result in a successful outcome. And if you put it in the market and it sells in the first week, it was not because it was underpriced; it was because it was
properly priced. In many cases a properly priced house may attract multiple offers which will drive the final sale price up. An overpriced house will just attract crickets which the owner can listen to as they sit there.
IN the Market vs. ON the Market –
A well-priced house will find its place IN the market, occupying a position where its price matches the perceived market value for the property. The first 3-6 weeks that a house is listed are considered to be “the Golden Time” for the listing, the time when the “newness”of the listing draws attention and the majority of the buyers who have been looking at similar houses will flock to see it – if they perceive that it is priced right. The goal should be to delight those visitors and not to disappoint them. An overpriced house will be ON the market at a price that draws poor reviews and feedback and possibly even drive would-be buyers away. You want the reaction of buyers to be Wow and not Whoa.
Buyers leave every visit to a house with a mental list of things that they saw that they think they will need to fix or change. The buyers assign dollar and time values to those items and make a quick determination of whether they want to take on the cost and time commitment necessary to complete those projects. Today’s buyers are often very busy people and the prospect of spending lots of time and money after they have bought a new place is just a big turn-off. Those who may be willing to take on the projects will add up the costs that they have mentally calculated and take that off their offer price. The key to being IN the market, instead of just ON the market is finding that listing price at which the perceived value that visitors will arrive at is equal to the asking price. At that price, there is nothing stopping the buyer from making an offer and the best way to find that happy price is to listen to the advice of a good Realtor. If you find a Realtor who agrees to list your house at whatever price you want, no matter how outrageous; run, don’t walk, away from that person. That is not a good Realtor.
The bottom line…
A GOOD Realtor will get you IN the market at a price that will immediately attract would-be buyers;
so, find a GOOD Realtor and listen to his/her listing price advice. Remember that Realtors (especially the GOOD ones) are acting as fiduciaries for you, which means that they are acting in your best interests, not their own. They want to get you the most that the market will bear for your property in the shortest amount of time with the least amount of hassle – they want a successful outcome for you. You and they both know that a successful outcome for you will mean a payday for them and that is a win-win situation for both of you.