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2012-01-26 10:20:06
How do I know I'm getting a good price on my home?

This question appeals to both sides of the aisle in the home buying and home selling process!  A seller wants to get the most money and a buyer wants the best deal.  For both, the question of 'how do I know I'm getting a good sales price' is typically the number one concern.

The answer can be surprisingly simple, especially when you consider all the 'wrong' answers floating around out there. 

Let's start from the viewpoint of the seller and look at some techniques that are commonly used to price their homes.  I've talked with hundreds and hundreds of sellers as a part of my real estate career and as an instructor to the public and to real estate agents.  Here are some of the most common techniques that would fall in the 'wrong' category of how to price your home that I have gleaned from all of these conversations:

  • I used an old appraisal. (appraisals are technically good for the day you ordered them.  They're not scientific anyhow. If you ordered 5 different appraisals on the same house, all five appraisers would come in with a different value.)
  • I took fliers from the neighbors house for sale (this one is extremely common and even the people taking the fliers know it's not a good approach...they just don't know anything better!)  
  • I looked online. (This one may work in other states besides Utah, but in Utah we are a non-disclosure state (for many good reasons) and it's not public record what the sales prices of homes are.  All you can see online is asking prices)
  • The neighbors told me what they sold for. (this is one to be aware of.  The neighbors rarely include concessions for closing costs, concessions, realtor fees, etc.  You may be getting the sales price, but you're not getting the bottom line, which is really what you need to make an educated decision.)
So, how does a seller price their home correctly?  What is the 'simple answer'?  The key to pricing your home correctly is to find actual sales that have recently closed (appraisers typically can go back 6 months in history) on homes that are similar to yours in style, size, and neighborhood.  
There are really only two ways to get this information. You can pay $450 for an independant appraisal or a real estate professional can help you.  Beware of which real estate agent you use though!  Many have their own agenda which may not be at all to your liking. 
Let me explain how comps (comparable home sales) work first.  On any given property to be appraised or 'comped', we can typically find 10-60 comparable sales that we could use.  An appraiser will choose 3-5 of those to justify what they consider the proper price to be.  This should be based more closely on condition, finish level, upgrades in the home, etc.  Real estate agents have access to this same information that an appraiser has, but they use it in a different way.  An appraiser is getting paid (typically $450) for the job.  He is trying to do his best to truly identify the correct value of your home.  (There are several conditions where even appraisers are swayed, but that's a different article for a different day).  
When a real estate agent comes into the picture, they're working in the hope that they will someday earn a commission.  This can lead to them providing you information that promotes their agenda more than yours.  You simply want the best sales price to expect for your home.  They want your business.  So, the 'rookie' mistake is to choose the three highest comps out of the possible 10-60 to convince you, the seller, that they can get you the highest value of all real estate agents.  They neglect to inform you that the comps they chose don't truly compare to your home in finish level.  Those homes are all granite counters, tile floors, crown molding, professionally landscaped yards, etc.  Your home has none of these (hypothetically), but is in the same neighborhood and roughly the same size. So the rookie tells you the high numbers, wins your business, but never sells the home because it truly is overpriced.
Then you have the other extreme.  The 'super agent' who has mass numbers of sales and scoffs at the rookie for trying to list so high.  He convinces the seller that he has the 'magic formula' to sell homes fast, sometimes offering a guaranteed sale in 1-2 months!  Then the other shoe drops and the seller learns that they've overpriced the home exhorbitantly.  This 'super agent' has shown them the 3 lowest comps in the field, convincing them to sell for as much as 20% below market value!  Thus the home sales fast but the seller takes a major hit.
Then there are the few solid real estate agents that truly respect their fiduciary duty to the client. The present you with up to 10 comps (not every comp because info overload stalls people out, but enough to show the true picture).  They explain the extremes to you and why your home fits somewhere in the middle.  Then they consult with you and your goals to price the home correctly.  If you have to move quick, they can price it low.  If you're just fishing for a high offer but you don't really need to sell, they can price it high (informing you of course that it probably won't sell at that price).  If you want top dollar for it but truly need it to sell, then they will price it somewhere in the middle.
And that is how a seller should price their home!
Eric Lee
Broker/VP of Education, Equity Real Estate
Visit my site at www.EasyUtahHomeSearch.com
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