So here you are – you have made the big decision to sell your home. You called an agent, they looked at your house and discussed your future plans and what you will need to make from your home in order to fulfill those plans. Then the agent tells you that they want to pull “comps” to determine a listing price for your home and they explain why – they need to compare your home to others in the area that have sold or are on the market and learn what price the current market will support.
So what is that agent comparing? Well, when a Buyer proposes to purchase your home and they obtain a loan, an appraisal has to be done. The bank or lender has to know that the home is actually worth the amount of the loan. An appraiser also pulls comps. They have a very strict system for utilizing comparisons – homes near you with similar characteristics that sold in the last 6 months. They also compare to active listings. Notice the first item – homes near you.
Location, location, location – that’s a catch phrase in real estate. In this case, it means that the appraiser will search for homes like yours as close to you as possible. Other things are taken into consideration. Is the comp located next to a factory that runs 24/7? If so, it would not be worth as much and that would be taken into account.
Homes like yours – if your home is on a very small lot with rocky ground and the back yard is a steep, unusable hill, the value of your home will affected negatively as compared to one near you with a lovely, usable yard.
Homes like yours but NEW – in certain markets, new construction is outselling existing homes. Your existing home may be very, very similar to a brand new home a few blocks away. In fact, yours may have more upgrades and so you think it is worth more. Unfortunately, that type of market may dictate otherwise and you may have to sell your home for less than that brand new home nearby – it is like yours with one significant difference – it’s brand new.
Updates – have you recently remodeled a kitchen or bathroom, added a deck, painted, put on a new roof, or made other improvements? If so, the value of each thing will be considered when being compared to another home. Perhaps, after looking at comparable homes in your neighborhood where renovations have been made, you might decide to follow suit and increase the value of your home. However, be careful not to spend more than the return on your investment.
But my neighbor’s house was listed for this much! The important question is not what it was listed for, but – what did it sell for? Unfortunately, there are times when a home lists for far more than what it actually sells for. When pulling comps, your agent is looking at the price the homes sold for, and this is also what an appraiser looks at because this is the only realistic measure of the value of the home. It is only worth what it will sell for.
The CMA. Your agent will give you a CMA – Current Market Analysis. Review it with the agent and ask them to explain the factors that led to the number they are giving you. Perhaps the agent has arrived at a price that is less than you hoped for. If so, talk it over. Perhaps there is an amenity the agent didn’t see or was not aware of – underground sprinklers, new windows and insulation, new roof, etc. All of those things are important in determining not just the list price, but also the “selling” price. As you see, it requires more diligence on the part of the agent than just guessing at what would work and good comps are an extremely important part of the process.
Do some footwork. Go to some open houses in your city. Take notes on the price and the amenities the house has. Look at the decor, the yard, the paint colors, furniture arrangement and try to be objective about how your home compares to what you are looking at. We all tend to overlook some of the flaws in our own homes because we have become so used to them. We also generally tend to think our home is worth more than it is. After all, we love our home and it has all or our personal touches on it.
Come to an agreement. Work with your Realtor to arrive at a price that the market will support while still giving you what you need to make the next step in your life. This can be a fun, exciting process as you work together as a team to see your dreams come true.