Wednesday, February 07, 2007

Home Pricing Strategies

Just as a football coach has a bunch of different plays to choose from and use throughout a game, you have a variety of strategies in how you can determine the price of your home. No one strategy can stand alone, but used together they can narrow the best possible price for your home.

Review Comparables

After sizing up the landscape, comparables play the biggest role in setting the price. Considered part art, part science, “comps” are regarded as the single-best tool in determining a home's value. There are some tricks determining which comps are the best; see the article on Picking the Best Comps for help. You can view comps on your property or anyone else’s on Zillow.com, simply by entering an address, though Zillow and other valuation sites are really just a first step, and data from any of these sites should always be triangulated with data from the MLS or other real estate listing sites.

Look at Unsold Homes

Homes on the market that haven’t sold yet are also a consideration, although not a strong one, since it’s unproven whether the house will bring the money it’s asking. But, look at the active competition. Find a home most similar to yours and find out how many days it has been on the market . If the house has been sitting for a while (more than 30 days), you will see the market is not convinced that is the correct price for that home. Once you see the “Sold” sign, find out how much above or below the list price it sold for. This will give you a good idea of how the market is behaving and how aggressive you can be in setting a price.

Use Square Foot Pricing

Some neighborhoods are a mixed bag of architecture, style, and size, which means if you can’t find another home similar to yours, you can use square foot pricing. How? Take 3–5 homes as similar to yours as possible, add up the square footage, and divide by the number of homes. This will give you an average per square foot for your comps. Then, add up the sold price of each home, divide by the number of homes to get the average. Lastly, divide the average sold price by the average square foot to get the average price per square foot. Once you have the average price per square foot, multiply it by your home’s square footage. This is just another tool to help you price your home.

Example:
Step 1: Find the average sq. ft. of comps
Home 1 – 1,950 square feet
Home 2 – 2,400 square feet
Home 3 – 1,800 square feet
Home 4 – 2,050 square feet
Total – 8,200 square feet 8,200 / 4 = 2,050 sq. ft. 2,050 is the average sq. ft. of your comps

Step 2: Find the average price of comps
Home 1 – $310,000
Home 2 – $410,000
Home 3 – $299,000 Home 4 – $325,000
Total – $1,344,000 $1,344,000 / 4 = $336,000 $336,000 is the average price of your comps

Step 3: Divide the average price by the average sq. ft.: $336,000 / 2,050 = $164/per sq. ft. $164 is the average price per sq. ft. of your comps

Step 4: Set the price of your home: Take $164 and multiply it by your square footage to get a price. For example, if you have a 1,975-square-foot home, multiply it by $164 (e.g., 1,975 sq. ft. x $164 = $323,900). Bingo! Your home’s price: $323,900!

Get a Comparative Market Analysis (CMA)

If you’ve used the three strategies above, but still need reassurance, go to a real estate agent — or, two or three — and ask them for a CMA. Whether you use the agent to sell your house or not, they will be more than willing to provide a CMA in hopes of getting your listing. It shouldn’t cost you any money to get one.

Get an Appraisal

If you really need extra assurance, hire a professional appraiser. An appraiser will cost approximately $250–$400, depending on your home size and uniqueness of the property. They will come to your home and itemize the number of rooms and amenities (e.g., swimming pool, fireplace, etc.) and will pull comps from other nearby homes that sold recently. Once they have completed their review of your home, the comps, and the market, they will furnish you with an appraisal. This will be an estimation of your property’s fair market value.

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