How to Find the Right Price to Sell Your Home
In General Information, by Anthony Bayardelle
The biggest question when you decide to sell your house is what the listing price should be.
Even for an experienced realtor, there are still an astounding number of variables to consider when pricing a home for sale. From the specifics of the condition, size, and age of the house to the market conditions of that specific geographic area, there are many different factors that should be weighed when coming up with a listing price.
This article will help give you an overview of all the different things you should consider when setting that all-important listing price.
How to Determine the Price of a House
Before we get into specifics, it’s important to look at the big picture.
As a seller, you probably want a quick sale and to sell for as high of a price as possible. This is all well and good, but it’s not a very specific goal. Rather than just aiming for the moon, try to consider your home sale from a business perspective.
Businesses aim to make money by taking in more money than they spend, and your home sale is no different. When selling your house, the first number you need to know is what your “break even” amount would be.
What Does it Mean to Break Even on a House?
“Breaking even” on a house means you neither make nor lose money on the sale.
Your “break even” amount would be selling your house for an amount equivalent to what you purchased it for, plus any additional fees you had to pay in order to sell it.
Here are some of the fees you might pay when selling your house:
Realtor’s commissions (usually 5%-6% of your sale price, split between the buyer’s agent and the seller’s agent)
Ongoing utility bills
Closing costs (usually between 2% and 4% of the sale price, often paid by the seller)
Now, you usually don’t want to list your house at your “break even” point because it leaves no wiggle room for negotiation without actually losing money. However, it’s still important to keep this figure in mind as the absolute minimum you would be willing to offer.
How Much Is My House Worth?
This is a far more complicated question than it appears to be. According to economic theories of valuation far more complex than we need to go into here, the only true measurement of what something is worth is what people are willing to pay for it.
However, this is little to no use for you when selling your house, because you have to set the listing price before you know what people will pay for it.
For this reason, when determining how much a house is worth, we use a number of different valuation techniques to arrive at a general estimate. These different values include the home’s assessment value, appraisal value, and market value.
Each of the different valuation techniques is calculated in a different way, using different information, and for a different purpose.
What is a Home’s Assessment Value?
Unlike the market value (which we will discuss below), the assessment value of your house is a single, quantifiable number.
As this is a figure created for tax purposes, you can find your assessment value on your most recent property tax bill. The assessment value is usually less than your house’s actual market value, so you wouldn’t want to list your house at your assessment value, but it’s still a good figure to know.
What is a Home's Appraisal Value?
The appraisal value of a home is based on an appraisal done by a certified professional at a specific point in time (usually during the mortgage process). The general purpose of an appraisal is to determine how much money can be borrowed and what the terms or conditions should be.
The appraisal value usually differs from the market value of a house, but it depends on market conditions whether it is higher or lower.
An appraisal value considers a larger spectrum of factors than the assessment value, Including things like curb appeal, position within the neighborhood, and proximity to desirable (or undesirable) features within the general geographic area.
What is a Home's Market Value?
This is the most comprehensive answer to the question “what is my house worth?”.
A home's market value attempts to include all the different factors (home size, maintenance level, comparable values, market conditions, etc.) to give you an estimated amount that a buyer would probably pay for your house.
There are many online tools that help you estimate the market value of your house.
(I emphasize the word ‘estimate’, because you can never really know the true market value of a house. When you eventually sell it, you will know how much one specific buyer was willing to pay for it at a certain point in time, but there is still no “objective” market value.)
Here are some online tools that help you compare different estimates for your house’s market value:
Zillow’s Zestimate Feature
Chase Bank’s Home Value Estimator
Realtor.com’s Estimated Home Value Calculator
PennyMac’s Home Value Estimator
Redfin’s How Much Is My Home Worth? Tool
Now, one thing you’ll notice with these tools is that there’s still a decent amount of variation between the estimates. I looked up a test home in our area using all five tools. The house last sold a few years ago for $1.2M and the estimated market values ranged from $1.2M to $1.5M depending on the tool.
This is natural because each site uses a different algorithm to calculate the market value of homes. Don’t try to get to a “right” value, as one doesn’t exist. Just use the proposed market value numbers as data points in a larger picture.
While the different types of valuations for your home are important things to know, there are also many other factors which should feature in your decision on how much to list your house for.
One of the most important of these is neighborhood comparables.
This means looking at the different houses that have sold recently in your neighborhood and comparing their selling price to the value of your house. Do keep in mind that this is not a straight apples-to-apples comparison.
You want to look at houses with similar features to yours, a similar size and bedroom count, and the same level of general upkeep. If you can't find one that's similar to yours, feel free to make comparisons between whatever figures are available, but keep the differences in mind when you're weighing the numbers.
One of the best resources you could possibly have when determining a good listing price is a realtor who is an expert in the area.
I want to stress this point: not all realtors are created equal.
Especially when you're selling a house, you want a realtor who has a deep network of ties into the local community. A realtor who is knowledgeable in your specific area will be able to tell you little trends and patterns that and an equally knowledgeable realtor with expertise elsewhere won't be able to tell you.
Even if you don't end up working with a realtor, it's definitely in your benefit to talk to a few different realtors about your potential house sale.
How to Price Your Home for Sale by Owner
This is an immensely complicated question, On which you should definitely do a great deal more research if you're seriously considering selling your own house.
I can't answer your entire question here, I can give you a list of factors you should take into account when pricing your own home. This list is by no means exhaustive, but it should give you the major players in determining what a reasonable listing price would be in any given situation.
What are the different market values for my house, as stated by the various home search websites (see above)?
Look at the other homes that have recently sold in your neighborhood. What were their prices? How did they compare to your home when it comes to maintenance, location, or other important features?
Are there any expired listings in near area? These are homes that went on the market and didn't sell. You can learn Just as much from the homes that did not sell as from the ones that did.
Are the prices of other houses currently on the market? Are there price bands or gaps in the prices that are offered? Take advantage of these if you can.
Make room for potential future price cuts. You don't want to list at the absolute lowest price you would consider taking. Don't go too high, but definitely leave room for negotiation and/or price cuts.
Is the condition of the current market? Is it a buyer's market? Is it a seller's market? This has a huge effect on the listing price for your house.
What is the best time to sell in your area? Seasonality plays out differently in different cities, so if you have to move it a specific time double check to see whether it’s a “good” time of year to sell in that area.
Calculate sum square foot cost comparisons for homes that did and did not sell in your area. This basically means you divide The sales price by the number of square feet to determine a price per square foot. Obviously, this won't be the only factor you consider, as it doesn't take location, maintenance, or other important characteristics into my mind, but it does give you a good basis for comparison between properties.
Overall, pricing your house for sale by owner is similar to working with a realtor to determine a listing price, just with less outside input. Either way, make sure you do your research and do consult industry experts, even if you don't end up using a realtor to list and show your house.
Can You Adjust Your Price After Your Initial Listing?
Yes, and it can often be a very powerful tool.
Trying to figure out the correct listing price is like guessing the outcome of a sports game from previous statistics on the two teams involved. It's definitely possible, especially with lots of really quality information, but it's never guaranteed.
Once you have the house on the market, especially after you have gotten a few offers, it's more like trying to guess the outcome of the game during halftime. You have a lot more information to go by.
If you list your house and have no showings, few people at the open house, and few offers, it might be time to set your price a little bit. On the other hand, if you get several offers the first day the home is on the market, you can consider selling it for a much higher price.
Should I price my home higher to leave room for negotiations?
The answer to this question is definitely a matter of opinion.
Some agents recommend leaving a little buffer room in your listing price for negotiations, While others advise you list your house just below market value. Again, this will depend greatly on your situation, the specifics of your house, and the market conditions in which you were trying to sell your house.
The one surety is that you shouldn't overprice your house to dramatically. Having attention come to your house the first few days it's on the market is important, so you don't want to drive potential buyers away right off the bat.
How do I respond to low ball offers?
First, it's important to mention that there's no official definition of a lowball offer. Many agents say that it is 25% or 20% below market value, but it really does differ by market and price range.
So, with that said, the first important question is whether an offer actually is a lowball offer, or if it's just a data point suggesting your home might not currently be worth as much as you want it to be. When you get an initial offer that feels like a little ball, do some honest soul-searching and try to figure out if it is a reasonable, yet low offer, or an actual lowball offer.
Next, try to remind yourself that any attention to your home is a good thing. While it's tempting to get annoyed by offers that aren't as high as you want them to be, try to entertain each offer with at least a little bit of optimism.
Also, this is a nice opportunity to lean on the expertise of your realtor. They will be able to tell you If something is truly an insultingly low offer, or if there's some kind of reason why the buyers made that choice.
Finally, if you are tempted to actually consider the offer, keep in mind that there are more factors to an offer than just the price. If an offer is lower than you had expected, you can ask for the buyers to make it up when it comes to a higher down payment, your contingencies, a specific closing date, or more surety when it comes to their financial credentials. You can also remove any appliances you are planning to start with the house, to make the price make more sense.
Overall, trying to take emotion out of the process. If you can, don't label offers as “lowball”, just focus on the specifics of the offer in question.
How Do I Get the Best Price for My House?
The simplest answer to this is knowledge and research.
The more factors you consider when going into selling a house, the more likely you will hit the perfect sweet spot that is not approved to drive away potential buyers, but is high enough to make you the greatest amount of profit on the sale of your home.
Make sure you utilize all your different sources of information, from online home search websites to government tax appraisals. Talk to area expert realtors for advice. Do a lot of research on comparable homes that have either sold, been taken off the market, or are still on the market in your area.
If you want more information, check out the attached printable on the 10 biggest mistakes sellers make. It goes into a little more detail on the things some sellers do wrong when listing their houses.