Home Value: 15 Tips on How to Investigate a Property
One of the most important decisions sellers and their agents make before listing a house for sale is selecting a listing price. Overpriced property is a top reason houses don’t sell. Buyers know their price ranges, what’s on the market, and the fair market price of the type of house they want. An overpriced house can scare them away. Pricing guidance is typical advice agents offer their clients. Real estate pre-license courses and exams cover appraisal principles and valuing property. But some real estate consumers may misunderstand what the listing price is and how it is determined.
- Do not base the price for a property for sale on what the seller originally paid for it nor the profit he or she desires.
- Calculate the market value, which is the most probable price in an open competitive market under the necessary conditions for a fair sale.
- Base the price of a house for sale on the prices of other similar houses in the same area around the same time.
- Ask your agent to do a comparative market analysis (CMA). CMAs are NOT appraisals, which are conducted by licensed appraisers and are more comprehensive and technical.
- Keep in mind the principle of substitution, which states that the price a buyer is willing to pay is only as high as the cost of acquiring a similar (“comparable”) property.
- For data, check out the local multiple listing service (MLS), local county appraisal websites, and sites like Zillow, Trulia.com, redfin, and Realtor.com.
- Find comparable nearby properties that have sold in the last six months. If possible, only consider houses within ½ mile of the house for sale (“subject property”).
- Look at expired and withdrawn listings, days on the market, and original list price vs. final sales price to avoid overpricing your house.
- Choose three similar houses with features, rooms, square footage, and age similar to the subject property.
- To account for the inevitable differences, add or subtract amounts from the comparable prices.
- If your house has something the others lack, add to the comparable prices; if your house lacks something, then subtract that amount from the price of the 3 properties.
- Note that the amounts for these adjustments vary by region and may be very different from the original cost of the feature.
- Calculate the average adjusted sale price of the comparable to get an idea of a sound listing price.
- Remember that prices of active listings are only a guide and don’t necessarily reflect what the houses will eventually sell for. Some houses are overpriced and some have reduced prices after sitting on the market for months.
- It is better to price the house too low than too high. Overpricing will discourage some buyers from even considering the house. Houses priced below market value can spark multiple offers.