Pricing a Home to Sell
Experienced REALTORS® make it look so easy (at times to our detriment.. but that's a different blog post). We confidently recommend an optimal list price range that sometimes falls right in line with estimates you saw online, and other times it's more or less (by a lot). It's also pretty obvious to us when a house is overpriced, perhaps not at first glance but close enough. It's the years we spent honing our craft, the hours spent touring homes, the research, keeping up with market trends and neighborhood developments, and the networking with other agents and appraisers that all contributed to developing and fine-tuning that skill. Yes, pricing homes for sale correctly is a skill because it takes more than aggregating some data.
So how do we come up with the list price we recommend? I can't speak for all Real Estate agents, of course, but here's my approach.
Let's start with what I don't do:
1. Look up AVMs (automated value models) on other websites. Don't check with the "Zestimates". Did you know that this website uses an algorithm of the homes sold in the zip code. It actually says this right on their site. In fact, the CEO of this company said that his own home's zestimate was not correct. These models provide a ballpark at best and a completely misleading guesstimate at worst. Why is that? The comparable used are not always actually similar. They can be a different type (townhomes vs. detached or colonials compared with ramblers), or in a not comparable neighborhood.
2. Establishing a price range and then adding on our negotiated commission. Recent news coverage may lead you to believe that this is how it's done but it is completely false. The value of your home is always based on the most comparable sales, that is closed listings that have ideally settled within the last 90 days (or longer if the market dictates). Appraisers will also not subtract the commission from the contract price to arrive at fair market value. That is just not how it works. They may, however, include one or two active listings to support the value.
3. Pricing your home based on what your neighbor sold for, or how much money you've invested in the property. Regardless of differences or the time that has passed since they sold. Most comparable is really key here! If your neighbor's home is a 3,000 square foot rambler with a basement apartment, but your home is a 2,000 square foot rambler with an unfinished basement, then it is not a relevant comp. Time also matters - especially in a declining or hot market. Improvements do increase the value of your home (updated kitchen & baths, or new hardwood floors for example). However, some items are considered maintenance that do not necessarily add value to your home. These can contribute to the overall condition, and are attractive to buyers, but you won't see a value adjustment for a new water heater for example or a non-permitted bathroom that needs work.
What does matter when pricing your home correctly?
1. The most recent sales that are most comparable to your home. Recent, however, can vary based on location and market activity. While you can't predict which recently sold homes end up in your home's appraisal, I do approach pulling comps with the appraisal in mind. It is my business practice to always try to meet with the appraiser and provide a package to them with all relevant information, including the comps we considered with adjustments made.
2. Improvements and unique features, or deficiencies and obsolescence. Does your home have a recently remodeled kitchen while the most recent comps had an outdated one? That matters. Did you build a permitted addition? That matters. On the other hand, it also matters if your home is fronting a busy street while the comps nearby are backing up to park or open space. It's important to note that in Utah, basements are included in the square footage whether the basement is completed or not. If the basement has a walk out, mother in law apartment with a kitchen or nice features, then in Utah it could add bonus points to the price.
3. Neighborhood knowledge and - if possible - a visit to listings that could become comps. When I start working with a seller, I keep a close eye on all sales activity and make an effort to look at new listings in their neighborhood that could be relevant to their sale. While an appraiser does not set foot in the most recent homes sold, we can - and should - while they are on the market. Floors don't creak in pictures, and deficiencies are not always obvious in professional photography.
Skills of a listing agent: pricing homes, correctly. Pricing your home is not a matter of checking what Zillow and Co. have to say, but preparing a comparative market analysis, adjusting for any differences, and having knowledge of your neighborhood, its appeal, and current market trends. Are you looking to list to sell or looking to list to sit?
When you interview agents to list your home, don't just ask how much, but listen to their explanation. How do they justify the recommended price? Going with the highest may be tempting, but it may not be the price a buyer is willing to pay, or an appraiser will support. Overpricing your home will cost you valuable time on the market, it may stigmatize your property and have buyers wondering what's wrong with it. In the end, it may cost you more than pricing in the correct ballpark to begin with.
Skills of an experienced listing agent, pricing homes for sale, correctly. This skill also includes knowing when to recommend, or facilitate, a pre-listing appraisal. Some homes are just so unique with comps few and far between. While it cannot be used by any buyer, it does help establish a list price and a copy can be made available to interested parties.
If you’re searching for homes in Sandy, Salt Lake City, Cottonwood Heights, Millcreek, Draper, South Jordan, West Jordan, Herriman, Daybreak, Riverton, Lehi, Saratoga Springs, or anywhere in northern Utah, Salt Lake Home Pros are the real estate agents to call. If you’re buying or selling a home, don’t hesitate to text or call us at 858-617-9449.
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