On the surface pricing a home for sale may seem effortless, but an experienced real estate agent will bring together several factors to determine the best price for your property. In fact, it’s experience that helps agents put dollar values on qualitative features. Those features range from the location of the home to current market conditions. Here are 7 factors that agents use to price your home for sale.
Keep in mind the advice here applies strongly to the Northern Virginian market where our brokerage is located. Pricing strategies and features that add or detract value vary based on your market. Speak to a qualified professional in your area for more information or feel free to contact us.
Every agent regardless of their time in the industry will start their assessment of a property by searching the multiple listings service (MLS) for homes that are similar to your home (also called the subject property). Depending on location and the market this can be an easy and quick process or it can be like finding needles in haystacks.
The idea behind comparables is the agent is looking for properties that would represent what the house would have sold for had it been listed in the recent past as well as identifying competing properties. Competing properties would be homes that are currently listed on the market that buyers will mostly likely also see during their home search.
The easiest time for searching for comparables is when the subject property is in a large subdivision. Since all the houses are built nearly identical then it stands to reason the prices will be nearly identical as well.
It becomes trickier when the home is in an area where the houses are significantly different from each other or where comparables are scarce. In these situations agents will typically search a radius of up to 5 miles for possible comparables. The idea is that it’s reasonable to expect that a buyer will look at homes within 5 miles of each other since the location is relatively similar.
Agents will then weigh comparables to the subject based on a number of factors including age, style, square footage, acreage, and number of rooms. The more identical the comparable is to the subject the less the distance of the radius comes into play. After all, a buyer looking at your 3 bedroom house is very likely to be looking at all 3 bedrooms houses within a 5 mile radius.
Once the comparables are found the agent will start organizing and analyzing them. First the agent will split them up based on whether they have sold or are currently listed. Properties that have sold within 3 months will provide the most insight on the state of the market and what your home is most likely worth. The idea here is that if your home were listed three months ago, the buyer will have paid that price for your house. An experienced agent will give very little if any consideration for a sold property’s listed price. The list price was where the home started, not necessarily what the home sold for. In fact, if the home sold for less than the list price it would be unwise to list your home for the sold’s original list – you’d be repeating their mistakes, especially since your competition is also looking at that comparable and basing their listing on the sold price.
Using competitive properties as comparables is a little more difficult because you can’t be sure of the listing agents’ experience of valuing their properties. Since they haven’t sold, you can’t be sure that buyers are willing to pay their list prices. Instead, agents use competitive comparables as a barometer of how to make the home more attractive. You never want to be the highest or lowest priced home in an area. If you’re the highest, it will dramatically decrease your showings. If you’re the lowest, buyers will assume something is wrong with your home plus if you do sell you could be getting less than what you should.
Homes that are under contract give you a stronger idea of what buyers are willing to pay, but bear in mind contract prices are not available until after the property has sold so the offer on the home could be higher or lower than the competitive comparable’s list.
Inexperienced agents will stop at step 1, assuming that comparables play the heaviest role in valuing a property. Indeed comparables provide a great deal of insight in pricing a home, but they should be used as a starting point not as the only resource.
Two homes may be completely identical to one another but if one home is poorly maintained the poorly maintained home will be lower in value. This seems like an easy concept, but what is considered poorly maintained can be a little unclear.
We always tell our clients to make their home looks like a model home. We aren’t necessarily suggesting it be staged, though staging can help, rather we’re suggesting that the home be uncluttered, clean, and bright.
Cluttered is a difficult condition to convey because what is “cluttered” to us may be “lived in” to you. It’s important to realize you aren’t living in the property anymore. As soon as you decided to list, it became someone else’s home. Pack up as many items as you can. You’re moving anyway, so consider this proactive packing rather than cleaning. Follow your agent’s advice though, because he or she may want you to arrange certain pieces as part of staging your property.
Your home should be spotless. Imagine you’re going to the thrift store (remember your home is considered used and second hand), aren’t you more likely to purchase something that is cleaner and free of defects? Sure, that stain in that shirt will come out if you wash it – or it might not. Or you can just buy a shirt that’s already clean to begin with. If your walls, carpets, or floors are dirty or smelly consider repainting or replacing them because they will go a long way in making your home sell faster. A home that sells quickly makes you more money. Once your home starts racking up days on market, it becomes a negotiating point for buyers since high days on market implies your home is undesirable.
Location is pretty much built into consideration during the search for comparables but location can be as narrowly defined as the floor on which your condo sits. Indeed condo properties on higher floors tend to be priced higher the same way end unit townhomes are priced higher or detached homes off main roads in a subdivision are priced higher.
4. Adjust for features
There are occasions where certain properties have certain features that will increase or decrease the value of their home. Unfortunately, it’s far easier to decrease the value rather than increase it.
There are a variety of reasons why popular features don’t increase the value of your home. Granite countertops look nice and are currently trendy, but as a resale they aren’t brand new anymore and it’s hard to justify adding their installation value to the value of your home. Those bamboo floors may have been expensive, but maple flooring is just as functional and looks just as nice. These features are what made the home feel more like a home to you, and while you may have been willing to pay extra for them, most people are not.
Bump outs and small variations in square footage also don’t increase the value of your home, especially if these variations don’t add any true functional space to your home. Most bump outs allow you to add a small table to your kitchen, which rarely justifies a higher home value to buyers.
Features like new air conditioning, stainless steel appliances, or new roofs rarely increase a home’s value. These items are considered maintenance. They maintain the value of your home because they should be operational, but they will rarely increase it over a comparable’s value even if it’s a fancy system (it’s the bamboo versus maple argument all over again). However, if they aren’t functional they can devastate your homes value especially if it’s the septic system. Maintaining your home isn’t just so you can continue living comfortably, it also protects its resale value.
Swimming pools don’t tend to add any value to homes in the Northern Virginia market since, unlike warmer climates, they can’t be used year round. This can be considered a highly custom feature as it could be a make-or-break feature for buyers. Use your pool or similar custom features as a marketing highlight, but avoid allowing it to influence your home’s values.
The news isn’t all bad. There are some features that can add value to your home. Finished decks, patios, and high quality landscaping add useable space to your property and buyers consider these features highly desirable. Fully finished basements almost always add value to your home. When trying to add value to your home, function almost always beats out form no matter how glamorous or trendy that feature may be.
5. Market Conditions
This is a factor where experienced full time agents have the biggest advantage over inexperienced or part time agents. After being in the business for a while, experienced agents can get a feel for the direction of the market. They aren’t psychic, but they can identify strong market indicators that can influence a property’s value.
Some of these conditions are seasonal. It’s no surprise that spring and summer are the most popular times to buy a home. The weather is nice, homes look more appealing, there are no holidays to compete with, and the kids are finishing up their current school year.
Some of these conditions are highly localized. While these trends are more subtle, we can give you a very dramatic example. When the government was shut down earlier in October 2013, home sales came nearly to a grinding halt in Northern Virginia since many people had difficult verifying employment or income. While the government shutdown affected home sales nationally, many Northern Virginians work for the federal government or government contractors.
Some of these conditions are influenced by the government or economic influences. The easiest example is the market crash around 2005. Another example is the home buyer credit of 2008. It increased home sales which in turn drove home prices up, but when it ended in 2010 home sales quickly dropped off and home prices decreased. A more recent example is the recent increase of interest rates on loans – the more expensive it is to take on a loan the fewer homes will be sold which generally leads to home prices declining.
6. Seller’s Input
Agents will always take their seller’s questions and concerns into consideration when pricing a home. After all, the seller has the final say where the home will be priced. This shouldn’t be taken as an opportunity to price a home with the intention of negotiating for a lower price. Over pricing could eliminate potential purchasers who don’t qualify for the higher list prices while simultaneously making you the lowest priced property in the higher bracket especially if you break into a new $100K mark (like pricing at $525,000 instead of $499,000).
Seller’s input weighs the most heavily when the seller is open and honest about their motivation for selling their home. If the seller is close to being underwater and is trying to avoid bringing money to the table to sell the home, the agent may suggest to price the home a little higher. If the seller has to move within a certain time limit, the agent may suggest a lower price to make sure it sells faster. If the seller is planning on using the funds received to make a down payment on a new home, the agent can try to calculate that into the price. The more open and honest you are with your agent about your finances and your goals, the better your agent can help you.
Depending on your situation your agent may suggest you have the home appraised. This is particularly important on highly unique situations, when condition is an issue, or when there are no decent comparables available on the market.
Appraisers use similar methods to valuing a property, but their value estimation is regarded with authority. Buyers who are getting a mortgage will always have an appraisal performed, because the lender will refuse to lend beyond the appraised value of a home. This doesn’t necessarily mean you can’t price a home above an appraisal but it does mean that the buyer will have to make up the difference in cash which many often cannot do. Besides, paying more for a property than the appraised value can be seen as going into your property underwater (owing more than what your home is worth).
Generally speaking, there are three kinds of appraisals: Conventional, FHA, and VA. Each appraisal goes hand-in-hand with the financing of the same name. They all pretty much use the same methods for estimating value, but FHA and VA also take property condition more strongly into consideration with VA being stricter than FHA. In fact certain property conditions can prevent the sale of home when the purchaser is using FHA or VA financing. Knowing what these issues are ahead of time could help you proactively make repairs saving you time on the market.
Remember to speak to an attorney or accountant before making any decisions as each individual’s situation is unique. This article is meant to provide information – not to replace a professional’s advice.