What is My House Worth?
The home selling journey usually starts with every home seller asking himself or herself, “What is my house worth?” When appraisers and real estate agents are pricing or valuing a home, they go to a multiple listing service (MLS) website and search for sales comparables (aka “comps”), which are recent sales of homes in your area that are comparable to yours. They use these recent sales to determine the correct price per square foot that your home should sell for (although this is not always what happens).
And as long as you have the right comps, you too can price your home correctly.
Criteria #1: Location
Because of hard-to-quantify aspects like school districts and neighborhood vibe, you want to be selling your home by checking out the sold homes within a tight radius of your home. Most appraisers will start by looking within a one-mile radius of the address, making sure not to cross school districts and natural neighborhood dividers like freeways and other major traffic arteries.
If your home is part of a subdivision, ideally all of your sales comps will come from your same subdivision since the homes will have been built around the same time, and by the same developer, using the same materials.
You want to pull at least three relevant sales comps to determine the most accurate valuation (but no more than 10), so if after searching based on the below criteria you find that there isn’t a whole lot to choose from in a one-mile radius, then expand your search to three miles, then five. When expanding the search to these wider areas, look for neighborhoods that are competitive to yours and try to stick to homes that were sold there.
Ask yourself who is most likely to buy your home and if they didn’t buy in your neighborhood, where would they most likely want to live?
Criteria #2: Size
You want to look at sold homes that are about the size of your house. You can deviate by 10% on each side (so if you have a 1,800 square foot house you can look at homes ranging from 1,600 to 2,000 square feet), and pay attention to how that square footage was calculated. Did they include the garage? Or what about any detached buildings on the property, like a shed or pool house?
In order to get the best idea of the price at which your home will sell, you need to pull comps for homes that are the most similar to yours. So you want to limit the comps to homes whose square footage encompasses the same areas as yours (e.g. finished basement, attic or garage).
Criteria #3: Time
Ideally, you want to look at homes that sold within the last three months. Real estate is cyclical so a three-month date range will give you the best idea of how homes are currently priced. But if you don’t have a lot of data that fits your size and location within the 3-month date range, it’s better to use a home that sold a year ago that is similar in size and location rather than a recent sale that isn’t comparable to yours.
FSBO Tip: To give yourself a better understanding of how the real estate market is trending, look at sales comps going back a year or two. You likely won’t be using these sales to value your home but you can see how your market has fluctuated and, if you have flexibility in your timing, use the information to decide whether this is the best time to sell.
Criteria #4: Similar Age, Updates, and Features
Buyers will consider a home that is newer than yours to be more valuable and a home that is older to be less valuable. So you want to look at homes that were built within a three-year time range from when yours was built.
Some things that can mitigate the age of a home are major repairs, upgrades, and updates. If you’ve replaced the roof, plumbing, and remodeled the kitchen, then your home will be more valuable than a home that was built at the same time as yours but hasn’t been updated.
Something else that increases your home’s value is a feature such as a view, swimming pool, or large windows. In order to get the most accurate market price for your home, you have to look at sales comps that are the most similar to yours and that includes any extra features that buyers will find attractive.
Once you’ve filtered the sales comps to this stage, you need to create a comparison chart. Using a spreadsheet, or even a piece of paper, make a column for your home and each of the sales comps you’re considering using. Make a line for each of the following criteria:
- Distance from your home
- Attributes of the neighborhood
- Size of the home
- Date of sale
- Age of home
- Major remodels or updates
- Attractive features
Criteria #5: It Passes the Drive-by Test
Once you’ve created the above-referenced chart, drive by the properties. Pay attention to the neighborhood. Is the home the only nice one amongst a bunch of teardowns? Is it near a freeway or major thoroughfare that causes a lot of noise? These are things that will negatively affect the price. Or on the other hand, if the home is near hiking trails or the beach or within walking distance of a school, that will positively affect the price.
These are all intangible characteristics that are hard to quantify, so take notes after you drive by each home and then drive to your home to compare the two environments. You’re not just selling a home; you’re selling a life. And you need to know how the external life of each home compares to yours.
FSBO Tip: Photos that sellers include in their online profiles are often heavily edited to make the paint brighter, the landscaping greener, and the overall house more attractive. So you need to drive by each one to get a feel for the true curb appeal of the home. A house that shows well online but not in person will sell for a lower price per square foot than a home that wows buyers when they pull into the driveway.
Once you’ve gathered all of your information, sit down with your comparison chart and choose the three homes that are the most similar to yours (weighting location, size, age, and sale date as the most important factors). If you’re left with three homes which meet these criteria but have features dissimilar to yours, you can adjust your sale price per square foot by about 5% per feature.
Collecting the right sales comps for your home is a little bit art and a little bit of science, but by employing a methodical approach, you should be able to correctly value your home. If there isn’t a lot of good data for your area, seek the help of a professional. Many real estate brokerage firms offer one-off services and will help you price your home for a small fee.
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