As a kid, (during the summer months where I was home from school) I remember rarely missing the television show, "The Price is Right!"
The reason I loved the show so much was because early on I realized I had a gift for matching the value of an item with what a consumer might be willing to pay for it. I have since found that I also have a nack for eye-balling and pricing homes too! And using all the available tools available to me as a Realtor, I am usually not that far off when the final price is set.
So while using this talent, as your Listing Agent I will also do something popularly called a, "CMA" (other wise known as a Comparative Market Analysis.) This data will be retrieved by me as I review all the houses listed (comparable to yours) within a one to three mile radius that have sold within the last 6 months.
Next, I will study some of the various statistics and trends that occur within your particular neighborhood to see if (or when) we might expect any economic changes or shifts, while at the same time keeping an eye out on what real estate summation/market reports have to say about your property.
By comparing the square footage of actual living space, lot size and then the various amenities your home offers, the research will give us a good idea of what the current market value on your home might be -- as well as an idea on how an appraiser might value or appraise the home once someone is ready to purchase it.
A FEW GOOD REASONS TO NEVER OVER PRICE YOUR HOME
1. When buyer financing is involved, (and it usually always is) the buyer's lending institution will send an appraiser to reveal the 'actual value' of the home so that the asking price and loan amount can be justified. This process is called, "finding collateral." When the appraiser proves that the house has met collateral, then the loan will typically be justified and pass through after closing.
However, if the appraiser reports that the house is not worth the asking price, in most cases (unless the buyer can come up with the extra cash needed - which happens rarely) the loan will not be approved and the deal will fall through.
2. If you have other homes in your market for sale ... guess where the buyers are going to go look first? You got it ... the less expensive ones. When pricing your home, remember to always THINK like a buyer!
Also, a good tip I can share with you is that most buyers tend to think in $25,000 dollar increments. If a ready buyer has told their REALTOR that the top of their range is $250,000 then the REALTOR will not look for homes any higher. If your house is priced at $260,000, when the REALTOR does his or her search, your home will never even come up on the report and you will be missing out on a huge number of prospects.
3. Some agents will actually make a point to show over priced homes to their clients *ON PURPOSE!* just to justify other homes they want them to buy and prove what a great deal they are getting. Yes! I know, that seems tacky, doesn't it!? Well, that is business for you. When you are at the grocery store and you pick up an item (when you are working from a budget) you usually pick up the more expensive item before you reach for the least expensive one. The same goes for home shopping. Everyone starts at the top and then goes down from there.
4. Then there are the "wise agents" who are going to sit back (with their buyer who is in no big hurry) and wait us out till we seem desperate to sell.
They will then make their move and shoot us a low ball offer that we would have never considered before had we set the price right to begin with. And as the double mortgage payments loom and it is time to move into the new house, get the kids in their new school or do the job transfer out-of-state ... money will seem of very little importance compared to time.
Two rules to follow...
If your home has had 10-12 seperate showings and got no offers, your price is too high.
If your house is in good shape and yet you have not gotten any showings in 2 weeks, the price is too high.
BUT! I SAW YOU CAN GET A HUGE AMOUNT OF MONEY WHEN YOU IMPROVE YOUR HOME! RIGHT???
There is a whole lot of talk going on about what people speculate they might get for their home today.
Thanks to television shows which focus on home improvement, this topic is becoming more than a household conversation ... it's a down right obsession! And to make matters worse, people are being convinced that spending money on their home ALWAYS causes it to go way up in value, beyond the price they originally paid. This is not always true!
Here is my point: Every day now folks are now running out, taking out home equity loans and spending $$ on improvements, in the hope they will make a $50,000 to $100,000 return (beyond the home's normal appreciation) once they sell in a few months from now! After all, that very thing seems to happen to so many on the television shows, right?
Well, there is a little something you need to be let in on... As shocking as this might sound (in the real world, no matter what HGTV might lead you to believe) 95% of all top dollar homes do not sell *in a matter of a few days, let alone months* based on the home's merit alone. The real reason it sells is because of the current demand going on for that neighborhood.
FACT: You have already heard the term, "Location, Location, Location!" Right? Well, when you start talking about producing ' really big numbers' on a home, you need to understand that the final price has more to do with the land or neighborhood the home's foundation is set upon than the condition of the home its self. I know that may sound bizarre, but it is true!
What the producers of some of these slickly produced "make over" television shows are not telling us is the featured properties (that do exceedingly well $$ wise) are based in hot areas where the property its self is in great demand and gone through the ceiling in value! Therefore, improving the home (otherwise known as 'modernizing' it) is in their best interest.
While Houston (my particular market) is certainly experiencing a significant boom and coming along fine, we still have a way to go before we can compare ourselves (in actual value) to the west or east coast, where a lot of these programs happen to be filmed. Therefore, it is always a good idea to pay close attention to the money we are spending in comparison to our home's true value.
So, while having crown molding, marble countertops, wood floors and even a pool installed in the back yard is certainly a significant plus (that can and will add value to a home), in Houston, Texas these items are not always seen as HUGE revenue makers, but rather they are viewed more as 'features' or 'amenities' that help attract buyers to a property so that a home can be more easily marketed, negotiated and sold.
Keep in mind, your home's selling price (or over-all value) has more to do with the popularity of the surrounding neighborhood (and what the surrounding homes are currently selling for) than the value of your actual home. This can explain why certain homes (that might not be as attractive or have as many amenities as yours) receive more money after they sell. This is due to the fact there is a high demand for that particular area and available homes there are seen as scarce.
So, when you finally decide to put in that wonderful $60,000 dollar pool, don't faint dead away when you find out 6 months to a year later a local appraiser only wants to give you $10,000, $20,000 (or maybe ... if you are lucky) $30,000 for it. In many areas of the country, people actually get absolutely nothing! And when you jump up and down screaming (holding your pool bill tightly in your hand) he or she (the appraiser) will tell you that you just "over improved" your property ... and exercised a term used in appraisal known as, "the principal of contribution." (Meaning you just gave that piece of land, the neighborhood and the future buyer of your home one heck of a Christmas present!)
I know, frustrating, isn't it?! This is why it is a wise idea to find a good REALTOR (who knows your particular market) and get their opinion before you start serious home improvements. (And in this case, of course, I am speaking of doing renovations, beyond the cost of doing normal/necessary repair and replacement costs.)
Another fact you need to know: replacing a roof or broken fixtures that came with the house, fixing torn siding, filling in cracks or holes in the drive way, painting, etc are never considered home improvements. These are seen as maintenance issues, and nothing will subtract value in a home like deferred maintenance can and will!
ALWAYS HAVE A CMA DONE BEFORE YOU DO HOME IMPROVEMENTS ... SO YOU HAVE A GOOD IDEA DOLLAR FOR DOLLAR WHAT YOU IMMEDIATE RETURN MIGHT LOOK LIKE.
Now, all this being said: as a home owner myself, I want to assure you that I know exactly how you feel when it comes to wanting to get the most out of your home! And please believe me when I tell you that as your listing agent, I will try my darndest to make sure you get top dollar for every dime you have invested! No matter what anyone says, the true "value" of your home is not just based on what your neighbor got ... or what some appraiser might say, but more on what you and a willing and able buyer can agree upon as the final purchase price.
Anyway, don't let all this get this "home pricing stuff" best of you! Just make sure you get your facts straight. Seek to find out the market value of your home annually. And when it comes time to sell, be prepared to be flexible ... keeping in mind that if the asking price is set too high in the beginning, there is a very good chance the listing is going to just sit on the market and become stale.
Here's to a future successful and profitable home sale!
Big Hugs!
Your Friend and Brother in Real Estate,
Christian
© 2007 Christian Andréason
Please do not copy or publish without author's permission