Setting the correct asking price for a house from the beginning, is by far one of the most important steps in selling the home. But how does the homeowner know what is the right price? Who sets the asking price? the seller? his Realtor? the home buyer? the appraiser.? How do they come up with the asking price?
Smart home sellers should interview at least 3 local Realtors. In a typical listing presentation, the Realtor will bring a copy of the tax records for the subject home, plus real estate data from the neighborhood. This data includes homes offered for sale, pending sales (those that have already accepted an offer but have not close escrow yet) and a list of all homes that have sold in the area within the last 3-6 months similar to the one the owner wants to sell. Realtors call this a CMA (Comparable Market Analysis).
To set the correct asking price for the house, the first comparison will be to look at the number of bedrooms, bathrooms and square footage. Chances are that the builder who built the neighborhood used the same floor plans and many homes in the area are very similar in sizes of lots, garages, fireplaces etc. The second part of the evaluation will include the upgrades or deferred maintenance that the subject property has incurred, adjustments can go up or down depending on condition. Home sellers who understand this data are actually doing an appraisal of their property, because that is the exact information that the buyer's lender will use to determine the value of the property for purposes of granting a purchase loan to the buyer.
Even though not all homes are built equal, or maintained the same, the median price for the home should stand out pretty clear. Appraisers must prove the selling price with at least 3 recent homes sold in the area similar to the one they are appraising. Most appraisers will be far more conservative than the homeowner when it comes to assigning value to improvements. If you put a $20,000 kitchen, you cannot simply add $20,000 to the value of the house, remember that there used to be a kitchen there, and the value of the old kitchen must be reduced from the $20,000.
The difference between a Realtor CMA (Comparable Market Analysis), and an appraisal are the forms in which the values are shown, other than that, they should both come up to the same price range, since the data available from the neighborhood is the same for both parties. Home sellers who want their property sold should pay attention to these numbers because it is here where the correct asking price should be set, leave a little bit of room to grant the buyer a small discount and make sure that the appraiser will have no problem coming up with the correct value of the house.
Most home sellers will want the highest possible price for their homes and often times go way above the median price for the area and put themselves out of the market. Unfortunately their Realtors will go along with a higher price in order to represent the seller and take a listing thinking that down the road they will adjust the price to the correct level. Everybody loses in this scenario.
If you are a seller, and your Realtor tells you a price, your next question should be: "Now, suppose I am the appraiser, can you show me 3 homes that justify that price?" If your Realtor cannot deliver, move on to the next one. Because if you do not, then you are going to be sitting on that house for a very long time. Even if your buyer comes along and wants to pay your inflated price, if the appraisal does not match the selling price, the bank will not lend and the buyer cannot buy, and you will not be moving any time soon, as simple as that.
If you ever find yourself thinking about selling a property, email me a note, I can help you find the 3 top local Realtors that will come and give you a professional evaluation and help you sell your home for the highest amount of money possible, in the shortest period of time and with the least inconvenience to you and your family, and the best part of all: This service is FREE of charge to you.
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