We need you to settle an argument. My sister and I are in the process of helping my parents sell their home. They recently hopped in their new RV and are busy traveling the country. They want nothing to do with the selling process and left us in charge while they are out having the time of their lives.
My sister thinks we should call a few local agents and go with the highest estimate figuring the agent who thinks it’s worth the most is going to be the most enthusiastic about selling it. I don’t really want to deal with a bunch of agents so I was going to pick the one who offers us the lowest commission, but I also want to make sure we ask the right amount for the house.
What do you think? Am I right or is she wrong?
Rivalry in Rock Island
You’re both wrong.
Pricing a home is initially kind of tricky, but once the house is on the market you have one sure-fire method of determining the best price. That method is contained in my favorite axiom of real estate:
The Market Never Lies–Ever.
Whether you are selling homes, jewelry, or livestock you can always count on the market telling the truth. The market is kind of heartless that way…
The biggest question home sellers face is the dreaded asking price. Oh the hours we waste trying to come up with the perfect formula.
If you’re anything like me, you will find ways to complicate what is usually a pretty straight forward process. Most home sellers already have some idea what their home is worth, so unless you are inheriting a house unlike any other and you don’t live in the area, I’m going to assume you have a ballpark in mind. If you really have no earthly idea where to start then you should probably skip the first method.
That being said, let’s see if we can’t narrow down the asking price so you don’t embarrass yourself at your first open house.
The five most reliable methods of finding the right price for your home:
* Search local comps (“comparative sold homes” which are houses like yours that have recently sold nearby)
* Call a Realtor for a CMA (“Competitive Market Analysis” which is a fancy report showing comps and adjustments to try to establish value)
* Hire and pay for a professional appraisal
* Hold an auction – I’m not kidding
* Zillow Zestimate
Here’s a look at each one:
Search local comps:
OK – Where do I do that? I’m not a realtor so I don’t have access to the Multiple Listing Service.
The best way to find comps for your particular neighborhood is to visit your county auditor’s website. Find it through an online search. Once you arrive at their site, look for a link to a property search page and start looking around. You can usually search a few different ways, but for now let’s use the address search.
Start with homes you know have sold in your neighborhood that are like yours. Be honest and think like a buyer. Just because you have an unusual attachment to the gold-plated handles on the kitchen cabinets doesn’t mean the next buyer will. Overall the things that drive prices in real estate are:
* Square footage
* Design (ranch, two-story, etc.)
* # of bedrooms
* # of bathrooms
* Lot size
* Foundation (basement, crawl space, etc)
Obviously you can’t know the hard answer to all of these factors, but the county auditor websites usually have the majority of these listed and since this is public information you will be able to see it all.
Once you’ve found homes you know have sold, it’s time to look for ones you may not know about. These could be private sales or unadvertised listings that never got a yard sign. Again, on the auditor’s site, look for the property search and look for a search term that allows you to search by sold date or transfer date. Go back 3-6 months depending on how many there are.
Again, look for homes that are similar and be honest (See above reference to gold-plated handles). Start ruling out anything you know the average buyer wouldn’t consider to be like yours. If you have a 3 bedroom ranch in town on 1/4 acre lot, do not try to compare it to the 50 acre mini farm that sold a few months ago just because it’s also a 3 bedroom ranch. It’s not the same and you know it.
A quick word about comp searches: If you are getting too many results, get more specific (narrow the square footage or year built to a smaller range). If you’re getting too few results, widen your search little by little until you get something.
Once you have a few (3-5) comps you can start to determine the value of any differences between them. For instance, if the ones with 2 car garages sold for more, you can do some quick math and find out that the extra car vs your one car garage will be around $5000 so you make that adjustment. Same is true if they have an old boiler and you’ve recently installed a new high-efficiency central heating/central air system. You can then add a few thousand for that as well.
As they say, this is a little bit of art and science. Since you started with a ballpark idea of value, all you’re really trying to do is justify that number with real sold data.
Call a Realtor for a CMA:
Most sellers do this because they are so afraid of underpricing the house. What they don’t realize is that while agents usually have more experience than you at pricing homes, they don’t have as much experience with YOUR home as you do.
Real estate agents have access to the MLS (Multiple Listing Service) and generally understand the ins and outs of the business better than the average home owner – That I will grant you. But—they aren’t any better at pricing your home than you are. I can prove it. Oh you dare me to? Ok fine.
If realtors are so good at pricing homes, why do they have so many of those “price reduced” signs in their trunk? HA!
Oh…you still don’t believe me? Fine, try this on if you’re really into torture…
Call three realtors and ask for a market analysis (CMA) on your home and I bet you end up with three different prices.
Anyway, let’s say you decide to go for this option and call a few agents for a CMA. Just exactly what is going to happen? In short, you’ve invited them into your home and now you must suffer the consequences.
That’s right, don’t make any plans for those three nights. Why? Because those agents are not just going to email you the CMA—they are going to insist on making an appointment to “go over” the CMA with you.
You just fell for step 3 of the real estate marketing funnel.
Let me explain.
What you are thinking:
This is awesome—I’m going to get a professional price opinion with all the data handed to me for free!
What these agents are thinking:
This is awesome—I’m going to get the seller’s undivided attention for an hour while I give them a long presentation on why they should hire me to list their home and at the end, I’ll give them the CMA that my computer spit out in 30 seconds.
Yep—that’s another dirty secret of the industry. Here’s the real estate marketing funnel in a nutshell.
* Run ads to make the phone ring or drive traffic to the website
* Offer free stuff like lists of secret homes for sale or a free CMA to get an appointment
* Use the appointment to give a dazzling presentation on why the client should list with you or buy from you
* Once the client signs a listing agreement or buyer agency contract, they are yours for 6 months!
* Get enough of these agreements and you my friend are a successful real estate agent
I’m not knocking the funnel—well ok, maybe a little—but the funnel has served realtors and clients alike for decades. I’m just letting you look under the hood so you’ll be more informed.
If you do end up getting a CMA or three, make sure you take it with a grain of salt. Remember, most agents do not and will not put a lot of effort into a CMA because it’s free and it takes time to do it right. You get what you pay for. Use it, but don’t bet the farm on it.
Also keep in mind that this agent is trying to get you to list with them so they are going to put your house in the most favorable light possible to get the listing. The goal is the 6 month agreement. After that they can pressure you to lower your price if the property doesn’t sell right away.
Hire and Pay for an Appraisal:
This one is pretty straightforward. If you really want a snapshot from a professional that has no agenda, get a professional appraiser. If you don’t know who to call, check with your bank’s mortgage department for a list of reputable appraisers. Contact the appraiser and let them know you are only trying to establish value. Ask what they charge, but expect to pay several hundred dollars for a full report.
Hold an Auction:
If you want to know the exact amount a buyer will pay for your house at a particular time, go ahead and schedule an auction. Of course, the big fear is that only one person will show up, but that’s highly unlikely. The beauty of an auction is that it’s the ultimate example of letting the market speak. If you choose this route, make sure you look into the marketing package offered by the auctioneer. You need to make sure they will be spending some money to get a crowd. Also, look into the details of the terms of the auction. Getting good terms from qualified buyers is one your goals so ask a lot of questions up front.
This one is easy. Visit www.Zillow.com and look for their unique feature called the Zestimate. This is a genius piece of software that uses some freaky NASA algorithm to put a fairly accurate value on your house. Of course you need to double-check it, but in the many Zestimates I’ve seen it’s pretty accurate.
Well there you have it. There aren’t that many ways to put a price tag on your house. There is no shortage of advice you can get on how to game this process and get the most for your home. By all means, take it all in and do your best to make a good decision.
Keep in mind however that you are only half the equation. The other half of this formula is the buyer. There are plenty of things you can do improve the value of your home, but the amount a buyer and seller agree on is the final statement of value on anything being sold.
Oh wait…did I mention? The market never lies–ever.
All your fears about underpricing your home are unfounded. All the horror stories about overpricing your home are also pretty thin. If you under price your home, you’ll probably get multiple offers which will drive the price up to market value. If you over price your home, it will sit until you lower the price and get some offers. Again…market value will come out in the end.
If you want more on price adjustment, see the my post “If your house is not selling, it’s overprice. (period)”
Best of luck with your folks’ house and tell them they are GENIUSES in my book for hitting the road and letting you deal with the house.
Well played Mom and Dad…well played.
You’re just at the beginning of the process so please reach out if you think of any other questions. Ask Me your questions, I read every message and do my best to personally answer them all.
P.S. Still looking for more info? Be sure to sign up for my newsletter below, not only will I keep you up to date on everything you need to know about real estate but I’ll send you a freebie just for signing up!