I spoke with someone on the phone this week who had the misconception that real estate agents are running up the prices of homes. I was puzzled by this and explained to her that real estate agents don’t actually control the price of a home, the buyers do. Obviously market conditions play into this as well, but put simply, the market value of a property is the amount of money a buyer is willing to pay for it.
In order to accurately price your home, a REALTOR® has to look at a combination of other, similar properties in your neighborhood. These properties fall into three categories: homes that are currently for sale, homes that recently sold, and homes which failed to sell while listed. This is what makes up a Comparable Market Analysis. Assuming that the houses in the comparison are similar in size, features, and amenities, and were all recent transactions, the results can reveal an indisputable price range.
Since market value is revealed by past transactions, real estate agents use the sales prices of homes that sold over the past six months as a guideline. They narrow the field to include only those homes within a certain radius, typically one mile, of the subject home. They compare the homes to one another, adding and deducting value according to the age of the home, size, location and amenities. Some homes are more of a challenge to compare, such as luxury homes or homes on acreage.
Many sellers also assume we look at tax records or what Zillow says the home is worth. Both of those are worthless in evaluating a home’s true value. The county’s assessed value of a home is rarely the same as the market value and involves the use of a complex set of calculations to determine property taxes. As for Zillow, their own website states their “Zestimate” is within 5% of the actual sales price only 80.2% of the time. I could throw darts at a dartboard and be closer than that!
What about getting an appraisal done? That’s actually something we recommend on rare occasions, but still doesn’t mean that’s what a buyer is willing to pay. It simply gives you a more detailed report that shows how an appraiser would view the property value. The appraised value of a home determined by a professional appraiser, typically hired by a lender, is to ensure the home is selling at or above market value before lending on it. Honestly, I could bring five appraisers to my house and get five different price opinions. I’ve had many buyers that were willing to pay more than the appraisal price this year because of low inventory and the high demand for homes.
Having said all of this, the current market makes pricing a home even more challenging. When prices are rising this quickly, sellers are fearful of leaving money on the table and are pushing the boundaries of their home’s price range. Believe it or not, you can still overprice a home. When a buyer looks at ten homes currently for sale, they quickly make the decision about which one is a deal and which one is overpriced. I watch the market very closely and I’m beginning to see many sellers grossly overpricing their homes. They sit on the market for thirty days with no offers and don’t listen to their agent when they tell the sellers their home is overpriced. Quite often I see those homes sell for less than they should have because they’ve been stigmatized by the market.
This is why it’s critical to use an experienced agent to determine the correct “asking price” for your home. If you have any questions about the value of your home, please do not hesitate to call us. We’re here to help you.