Listing Your Home for Sale? How to Determine Your List Price
By: Kyle Spearin
The time has come for you to sell your house.
You’ve seen your neighbors get offers for over asking with far less to offer than your home. Doing your research on Zillow has led you to believe you could get more money than you ever imagined for selling. With your hopes sky high, you envision your home selling for over asking in a bidding war.
Several realtors come to your house to give listing presentations, but you’re disappointed with the list prices they show you. You’ve set your expectations on a certain number, so anything below that seems unfair.
Unfortunately, this happens all the time because you don’t have the same information as your realtor. There’s a simple way for sellers to understand where these numbers come from.
What if you thought like a realtor?
This would enable you to understand their pricing methods and be able to ask the right questions as you begin to list your home. In this article, you’ll learn to do just that.
Finding Potential Matches
The first step in determining the list price of your home is to conduct a Comparative Market Analysis (CMA for short). Using data from the local MLS, your realtor can pull all sorts of information that allows them to compare houses.
To generate an accurate estimate of what price your home should be listed at, the realtor needs to locate potential matches. There are several factors that a realtor can use to narrow their search and create more accurate results.The style of home that you own is one example– if your house is a raised ranch, it makes sense to compare it to other homes of the same build on the market or previously sold. Other factors include, but are not limited to:
- Square Footage
- Number of Bedrooms
- Number of Bathrooms
Some of these are purely number based such as beds, baths, and square footage. This allows your realtor to compare apples to apples. They will also look for whether homes have updates or not, a house with updates will sell for more than a house without updates. This is where the search for matches becomes just as much an art as it is a science.
Once a realtor has generated a list of potential matches, they will start to look at pricing in relation to other information. An excellent way to further comparisons is to see what the market currently looks like in live time.
Currently On The Market
Houses that are currently on the market are your direct competitors. A realtor needs to consider these homes in their estimations due to the fact that potential buyers will be comparing them. Ideally the price range would be close to the others listed so that the buyers go to both open houses rather than ignoring one altogether because it’s too expensive.
As a realtor looks at a spreadsheet with different pieces of information, days on market will stand out to them. Houses that are overpriced (among other factors) tend to last longer on the market. This is critical information because the optimal time to sell a home is by the first open house. When a house sits on the market for long periods of time, it loses traction.
A house that’s under contract is one step closer to being sold, which means that it has much to offer. Realtors can use this information to raise the question: “what made this house stand out enough to get offers while others are still on the market?”
Although you might think that a house on the market is the most accurate price comparison, it’s not. Recently sold homes (within 6 months) are proof that people were willing to pay a given amount for the property. Especially when homes were sold a week or a few months prior, these are the most accurate indicators a realtor can use to extract pricing information.
Determining Price Points
Using all the information gathered thus far, your realtor will have enough information to draw accurate comparisons. Based on the houses they’ve deemed as similar to yours, they will analyze a variety of data points to come up with final prices that you see on a listing presentation. Each realtor’s method may vary, but most use a combination of these tactics:
Price Per Square Foot
Most people familiar with housing use price per square foot to draw comparisons. Based on the size of your house, a realtor can look at similar sized houses to see what your price per square foot would be. One thing to beware of is that this works best when the realtor is also comparing a house with other similarities such as updates, beds, baths, etc.
Sale to Assessed
Another mathematical way to decide on pricing is by looking at what houses were assessed at for taxes. This is then compared to what the house actually sold for. A realtor can use this to estimate your home price by multiplying the assessed value of your home by the sale to assessed ratio. Although more technical, it is a great way to delve deeper into the numbers.
Sale Price of Most Similar Properties
This is where the “art” part of the process comes into play. Usually realtors will narrow down the 3 to 5 most alike properties. Using the prices of these homes, plus the aforementioned techniques, they can come up with a well-informed pricing decision.
The realtor will suggest these numbers to you based on their findings, but ultimately you’re in control of the list price. Be sure to ask them how they came up with each number they present so that you can make a decision based on logic, not emotion.
Knowing how a realtor conducts a Comparative Market Analysis will help you understand pricing strategies as you list your house. With this information in mind, you can make the best financial decision for you and your family.