NAMING YOUR PRICE
How to Evaluate and Price Your Home
Michael Efird, Patrick Darnell, Kathy Xiong
(www.atlantabesthomes.com/images/pricing.jpg)
You need to sell your home and you have no idea what your house can sell for. Deciding on a selling price for your home is not an easy task in any market. In a seller’s market you might be nervous of “leaving money on the table”. In a buyer’s market you might be concerned with overpricing that could result in not selling at all. Even in a stable market there is the balance of maximizing price with how fast you want to sell. However is there really such a thing as a stable market in California? It tends to be traveling one way or the other.
There are several different methods that can be used to calculate your home’s value and selling price. There is the eyeball method, website calculation, and a CMA (Comparable Market Analysis) from a real estate professional. All of these are methods that are used by homeowners to sell their home. We will discuss each of these and provide explanation on which method you should use and how to insure that method is done correctly.
In the Eyeball method a homeowner does a survey of their surroundings. They take inventory of the houses in their neighborhood for sale. They make a rough assessment on the condition of the houses for sale. Then the homeowner compares the listing prices of the homes in the area along with their condition and derives a value of their own home in relation to the other homes. This method is flawed in many ways. This method only takes into account what houses are listing for and not they are selling for. This method also is based more on personal value and not on what the market will truly produce. Most importantly this method is not being performed by a professional in real estate. In this method there is high probability that your home will not be correctly priced due to the subjectivity involved.
(http://www.sterlingrealestateinvestments.com,/ 2009)
The website method has become widely used. The age of the internet and information now has driven several websites to do the calculation for you. A popular website for this is Zillow.com. Zillow.com provides you with what is called a zestimate. This is Zillow’s estimate of what your home’s value is. These websites take the personal aspect out of home pricing which is dominant in the eyeball method. The website methods take a straight statistical approach to home values. They take the most recent sales available within a reasonable distance and populate those into a data base along with their square footages. This gives them a price per sq ft. this price per sq ft is then applied to homes of similar size. This method has some perks. The first is time; you can have a “Zestimate” in seconds. You literally can drive around neighborhoods with your IPhone and research home values instantly. This method also uses actual home sales where the eyeball method uses listing price. This method is purely objective not subjective. It merely takes the statistical data of actual events and calculates what your home is valued at. There are some pitfalls to this method. Typically these methods undervalue the property because they do not take into account items that can increase the value of the home. These websites do not take into consideration pools, garage sizes, R.V. parking, condition of home, or other items that will directly influence the amount the home will potentially sell for. In the example given below three houses next to each other have the following values, $241,000, $240,000, and $212,000 (http://www.zillow.com/homes/2814-W.-Newton-Ct.-Visalia,-CA_rb/). The least expensive home is 1,869 sq ft. with price per sq ft of $113. The other two houses are both 2,675 sq ft. with a price per sq ft of $90 per sq ft. The house priced for $240,000 has a large lot, fire pit, R.V. parking, custom cabinets, and many upgrades. The home priced at $241,000 does not have these features yet is valued at a $1,000 more. There is also the difference of $23 per sq. ft. between the other two houses. This method typically does not have the most current data. This method is typically three months behind, according to Marc Paolella of trulia.com. Which in a fast changing market could turn out to be disastorous? This method is getting better as technology and GIS systems improve. However at this time it is not the most accurate best way to price your home. (Paolella, 2008)(zillow.com, 2009)
(http://www.02038.com/, 2009)
The third way is to have a Realtor provide you with a CMA (Competitive Market Analysis). This method is the most comprehensive way of calculating a pricefor your home without paying an Appraiser. This method takes into account all of the processes of the other two methods and expands on it. The CMA is broken into four steps:
· Collecting and Analyzing information about the sellers property
· Choosing the Comparable Properties
· Comparing the sellers property to the comparables and adjusting values accordingly
· Estimating a realistic selling price.
When collecting information about the seller’s property the Realtor will begin by analyzing the seller’s property, neighborhood, and the structure itself. The Realtor will be looking for things that may increase or decrease the value of the home. These items may include the location in regard to schools and shopping, the condition of the other homes in the neighborhood, the condition of the property, and the condition and layout of the home itself. The Realtor will then locate comparable properties both for sale and sold within the same neighborhood. These comparables are adjusted to match the subject property. This is done by adding or subtracting the value of the different amenities and or features that create value. (National Association of Realtors, 2009)
Once this is completed the Realtor provides an estimate of a realistic selling price. At this point the homeowner can make an informed decision on what they would list their home for. This process incorporates not only statistical information but also takes into consideration the subjective information. In interview with Jayne Wills, a Realtor in Visalia, she stated:
“The key to this approach is using both sold and for sale comparables. You need to make sure you price your home competitively but also at a price that is line with homes that are actually closing on the back end.” She went on to say, “it is important that you are using all information that is available to Appraisers. You have to be able to appraise the home for what it sells for or you could lose the sale when the appraisal is less than the selling price.” -Jayne Wills, 2009
This means that the CMA will need to most likely include any foreclosures or short sales. All comparables need to be used with caution. You will not want to use sales that are not typical of the other sales. For instance if the neighborhood has a significant amount of foreclosures and short sales, it would be necessary for them to be included. If there are few of these, then they might be excluded as comparables but still included as part of the CMA.(Wills, 2009)
The Realtor CMA is the best method for pricing your home. However it is not without its own potential drawbacks. The CMA is reliant upon the Realtor performing ethically and in the best interest of the Principle. Sometimes a Realtor might be more interested in a quick sale or in a large commission. In these cases it is possible for a realtor to act unethically by including comparables that slant the CMA one way or the other. This can be avoided by having several Realtors provide you with a CMA before you decide which one you want to sign a contract with. By doing this you can get several perspectives and decide which one works best for you. At the fallowing web address you can find a good example of what to expect in a CMA, http://www.homepricelv.com/SampleCMA.pdf.
Selling your home is not an enjoyable task for most people. It is important that we avoid unnecessary pitfalls and stress during this process. The best way to do this is to use a Realtor and have them provide a CMA so that you will be well informed when deciding how to price your house.
References:
www.atlantabesthomes.com/images/pricing.jpg
NATIONAL ASSOCIATION OF REALTORS CODE OF ETHICS-evaluating and pricing, Chicago, IL. 2009 http://www.realtor.org/MemPolWeb.nsf/pages/COde
Paolella, Mark 2009 http://www.marcpaolella.com/
www.trulia.com/voices/homebuying
Wills, Jayne: Remax Real Estate Agent, Interviewed by Patrick Darnell, 2009
http://www.zillow.com/homes/2814-W.-Newton-Ct.-Visalia,-CA_rb/
http://www.02038.com/wp-content/uploads/2009/09/nego-price-home-for-sale-MA-9.jpg
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