There are multiple different methods for finding the price of a home. Some work better in certain market conditions than others. In a buyers market with lots of listings, making simple adjustments based on a home’s features works well. However in a market with lots of buyers where sellers have a strong position, listing your home in the correct price range can get you plenty of attention and offers.
Ultimately when you are selling your home, you don’t determine the value of your home. Listing agents also don’t determine the value of your home. Buyers and the market determine the value of your home. However, that doesn’t mean they have the most power in the situation. Buyers are more likely to budge and accept a price they don’t like if it is in the correct range. So, to find the price of your home, REALTORs will find homes that have sold in the past that are similar to your home and base the price off of those.
However, many listings aren’t appropriate to base your price off of. For example, there are expired listings. These were listed on the market with high prices, never sold and then went off the market. They are good examples of prices that unrealistically high. They aren’t a good example of what your price should be because they didn’t end in a successful home sale.
Sometimes in a market with tight inventory, like the one we are in now, there are also pending homes, ones that are being purchased currently but that have not closed yet. Pending listings might be good examples to base pricing off of, but, since we don’t know if they will appraise to be worth the value that they are being purchased for, they aren’t generally good to base your price off of. If there are very few comparable listings, sometimes they can be useful to consider.
Sold data is the only reliable thing to base your pricing off of. It is what loan officers base their willingness to lend money off of. It is what appraisers use to assess the value of a home before a transaction goes through. So, generally speaking when there are lots of listings to base your price off of, sold listings are the very best ones and the only ones that should be used to find the right price to value your home at. (That being said, a really good REALTOR will show you all of the homes that might be considered comparable and tell you exactly which ones they will and won’t use as comps and explain why they use some and not others so you have a complete picture.)
So that you can understand exactly why your pricing should be based on the comps your realtor is providing, you should get a full printout of information on each home that will let you study all of the details. Again, you should also receive info sheets on the other comparables that were eliminated so you can see why they don’t quite match.
Comparable Listings for Right Price Analysis
So what makes a home comparable to yours? Here are a few of the things we look for
- Proximity – It’s best if they are in the same neighborhood. The next community over sometimes works if most other qualities are the same.
- Schools – The school systems that the house is in affect the price. Comparing homes in different school systems can be like comparing apples to oranges.
- Builder and Year Built – Both who built the house and when they built it matter quite a bit. Homes built in the same year tend to have a lot of the same qualities and design aspects. A home by the same builder built in the same year should be very similar and make and excellent comparison.
- Upkeep and updates – There is a world of difference between a lovingly cared for a bungalow and a little broken down shack. They might have the same square footage, plot size, builder, and neighborhood.
- Time of sale – A house that is exactly the same as yours which sold three years ago wouldn’t be a good comparison. Recent sales are needed for accurate pricing data.
The definition of an absorption rate is the rate at which homes will sell within a defined market segment in a given period of time. It is expressed in unit sales per month. It is something that your Realtor should go over with you. After assessing what your market area is, and that could be a whole article on its own, if you wanted to calculate the absorption rate, you might do it like this
# of sales in the last 6 months / the last 6 months = # of sales per month
Then, from there you could find the months of inventory, or the time it would take for all the listings on the market in your market area to sell. You could do that by making a calculation like this.
current number of inventory homes / # of sales per month = months of inventory
Finding that month of inventory calculation will give you a pricing strategy. Pricing closer to the market value based on comparable properties will help it sell. The months of inventory will give you the term in which you can expect to sell the property. If you need it to sell faster than that you would need to price it more aggressively.