When establishing the list price for a new home for sale using the most comparable of the most recent sales is key. There is no secret formula but there are some guidelines:
- architectural style - ideally one compares apples to apples, a Colonial with other Colonials, or a rambler with other ramblers
- square footage - above-grade square footage matters, comps should fall within the same ballpark
- age - it should be of similar age
- proximity - the comps are in the same neighborhood, but if there is no recent sale then we look outside but still within reason (same school district for example)
- improvements/finishes - the goal is to find comps that are in similar condition (either recently updated or in their original condition)
- closing date
I always approach this process by keeping the appraisal in mind. While I cannot predict which comps an appraiser will use, I can look for and consider the most likely comps by searching according to the above criteria.
Reason #3 why online home value estimate can be inaccurate: not using comparable properties
That is not the case for various 3rd party data aggregation sites that many consumers utilize when searching for a new home. Their list of "similar homes" may show some recent sales that are anything but similar, or not really that recent. It can include any home that just sold within the area, no matter its size, style, age, or its proximity to the subject property.
Since I always check what these sites estimate the value of my listing to be, I've seen some really wacky ones. A townhome will never be used as a comp for a detached single-family home, nor will a garden-style condo play a role when evaluating a duplex. Just because these homes happen to be in the same neighborhood or zip code does not mean they are comparable. A more recent construction is not a comp for a 100-year-old house, or homes that come with an acre or more of land won't be comparable to homes that sit on 0.15 of an acre.
Similarly, when the two most recent home sales were court-ordered or REO properties, they are not the best comps and can be disregarded especially if other comps are available. If one recent sale has not been updated in 50 years but the other sales have, then we also either disregard it or make adjustments to condition.
So, next time you check what your home is worth, or what Zillow & Co. think that house you want to put an offer on is worth, take a closer look at the "similar homes", or better yet, consult your REALTOR®.
Pricing a home for sale correctly is not a matter of just taking the average sold price of homes within the area, it is much more nuanced than this. It takes into consideration style, age, improvements, square footage, proximity, and closing dates. It can only be done correctly if time is spent on research and analyzing the most recent sales, there is first-hand knowledge of factors that could up or lower a home's value, and when one sets foot in a home... something an online data aggregation bot will never be able to do.
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