How To Know What My House Is Worth – Before you sell your home, figure out its value—and what it will take to get buyers to bite. Here’s how.
Imagine you are a contestant on The Price is Right. The announcer has asked you to “come down”, and you have correctly selected the correct price for a bottle of hand soap and a brand new washing machine. Now, Drew Carey (or Bob Barker, if you prefer reruns) opens door number three to reveal…your home! Could you correctly determine its value?
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Most sellers think they know at least a figure for their home, but most are way off, especially in a volatile market. It’s important to know what your home is worth without the rose-tinted glasses before you decide to sell, and then learn strategies that work to sell it.
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Guessing the value of hand soap on a game show isn’t that much of a roll, but throwing a random number at your “for sale” sign is risky if you’re trying to sell. Before settling on a price, try one or more of these valuation methods:
The Process: Automated Valuation Methods (AVMs) are online programs that use public home sale records, demographics and property characteristics to find your home’s value. You enter your home’s information, such as location, square footage, and the number of bedrooms and bathrooms, and the software returns an estimated value.
Pros: AVMs are quick and easy, and many are free. AVMs are a great way to track trends in value because they compile statistics from public records.
Cons: “It’s just software, so if you have a house next to the freeway or your neighbor painted their house purple, which lowers the value of your house, there’s no way they’ll know,” says Jay Thompson, appointed broker at Thompson’s Realty in Phoenix, Ariz.
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The software isn’t great at determining the specific value of your home — it may tell you that your overall value is going down, but it may not have the actual value correct. Areas with fewer sales will be even less reliable because the pool of data is smaller.
Also, national AVMs are often not as reliable as local software. “It’s actually a complete waste of time in New York. What we have is Property Shark and StreetEasy, which are local to New York,” says Wendy Sarasohn, senior vice president at Corcoran in New York, New York. “These two services are linked to the various brokerages, so they get actual closing prices.”
The Process: The first step of an appraisal is a property inspection, where the appraiser takes notes on what the property has and what is missing. For example, says Leslie Sellers, president-elect of the Appraisal Institute and an appraiser in Knoxville, Tenn., if a home has two bedrooms and the market for the area typically calls for three bedrooms, that will negatively impact the home’s value. Appraisers also look for defects in the home that buyers typically ask to be fixed before signing on the dotted line.
The appraiser then sits down and crunches the numbers, comparing the home to others that have recently sold or are for sale in the neighborhood. “If it’s bigger than a home sold, we might adjust the price up… if it’s less, we’ll adjust it down,” Sellers explains.
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The appraiser then gives the homeowner the facts: Information about the homes in their area that are competing for buyers, a list of things that might add value and appeal to the home, and of course, a suggested listing price.
Pros: “Appraisers are dispassionate and objective,” says Michael H. Evans, a member of the American Society of Appraisers and owner of Evans Appraisal Service in Chico, California. “A realtor is trying to get a listing, while we’re going to tell you the truth whether you like it or not.”
Appraisers can also discover problems that could delay a sale before you put your home on the market. For example, if an appraiser notices that you’ve added square footage without a building permit, they’ll send you to the building department to fix the problem before you sell.
Cons: No appraiser is going to appraise your home’s value for free. The home assessment will cost between $200 and $500, depending on which part of the country you are in.
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Also, not all appraisers are created equal — people who are inexperienced or new to the area may not have the breadth of knowledge needed to determine your home’s value. When looking for an appraiser, be sure to look for someone licensed at the state level and accredited by a national professional organization, such as the American Society of Appraisers or the Appraisal Institute.
The Process: After looking at the home, agents usually start the process with a neighborhood look for “fancy” or similar homes that have recently sold (usually within the last three months) in the area. In suburban areas, harvesters usually come from within a half-mile radius around the house.
In highly populated areas like New York City, where a $25 million pre-war co-op might be a block away from a building full of $2 million post-war apartments, the funds usually come from within the apartment building, Sarasohn says.
In a falling market, it is just as important to look at pending sales because they are the future competition for the home. “Sometimes agents will tell you the sales price, sometimes they won’t, but you can use a median of sales prices to see where things are going,” explained Elizabeth Weintraub, an associate broker at Lyon Real Estate in Sacramento, California. You can then adjust a percentage based on the softer market.
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In a foreclosed city, this can also play a role in the dealer’s recommended selling price. “Another foreclosure in the neighborhood doesn’t really affect your price, but when 4 out of 5 sales in the neighborhood are foreclosures…those are the payers,” says Weintraub.
Sarasohn also asks six or seven colleagues from other companies to honor the house. “Sometimes I’ll say whoever comes closest to the sale price gets some kind of prize, like seats in a Broadway play or gift certificates, so there’s an incentive to think about what they’re saying,” he says.
Pros: CMAs are usually a free service, and you can (and should) get the numbers from multiple agents before choosing a listing agent. Agents have access to the same information and records as appraisers, but typically don’t provide as much detail in their report, says Dee Hake DeMolen, a broker and broker in Dover, Del.
Cons: Real estate agents have an incentive to do a CMA for free — they want to list your home. As a result, some will recommend that you list your home at a higher than market price in an attempt to get your business.
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“I always encourage sellers to list the apartment we think the market is in, but sellers make the mistake of saying, ‘Well, another realtor said he could get me X amount.’ No broker can determine what he can get — the market determines that,” cautions Sarasohn. To avoid this, get estimates from three agents at three different companies and don’t necessarily go with the highest quote.
Also, some agents are better at doing CMAs than others. To make sure you’re getting the right information, ask each agent to walk you through the process so you understand how they crunch the numbers.
Even if you use an agent or appraiser to determine the value of your home, you can choose a price and sell yourself — “for sale by owner,” or FSBO.
You’ll avoid an agent’s commission if you sell yourself and you’ll avoid the risk of wasting money on an innocent agent. Nancy Spearrin, a seller from Solon, Maine, decided to sell on her own after two bad experiences with agents. When she and her husband first listed in 2007, their first agent told them to list their 2-home property at $249,000. After they signed a 3-month contract, he started to drop the ball, waiting three weeks after the contract to even register the property. After a no-show and an innocuous open house, they took their house off the market.
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Spearrins tried again in 2008 with a different agent, this time with even worse results. “When the agent finally listed our home on his website for $209,000 three weeks into contract, all he put in the description was ‘These homes share a septic system!'” No listing of landscaping, pool, custom kitchen, nothing !”.
Frustrated, they ended their contract and decided to go it alone. “I’m convinced I have more motivation and willingness to work to sell it than any agent we’ve worked with,” says Spearrin. They researched what homes had sold for in the area in the past year and settled on $189,000 for both of their homes. Homes are still listed on Craigslist.org, Zillow.com and Postlets.com.
But despite their problems with agents, Nancy admits it’s frustrating to price and sell on your own. “It is very difficult to find comparable homes in our area as we are uniquely fortunate to have 2 well maintained homes on one lot in town.” She also says it’s hard to keep her house inside
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