Homeowners preparing to sell their home usually call a real estate agent, or sometimes several, to make a presentation. Sellers should consider an agent’s professional qualifications, recommendations and marketing plan. But, what sellers are most interested in knowing is: What’s it worth?
There are various ways to establish the value of a property. For example, if you are insuring your home against fire, you’ll need to know the replacement-cost value of your home, which is basically dependent on the size of the home and any other structures on the property, and the current cost to rebuild in the area.
However, in the context of a home sale, market value is the relevant variable, which may or may not be the same as replacement-cost value. Unlike replacement-cost value, market value is determined by the amount a willing and able buyer will pay for the property at a given point in time.
Typically, real estate agents determine an appropriate selling price range for a home by preparing a comparative market analysis, or CMA. This involves comparing the attributes of the property in question with other similar properties in the area that have sold recently. Adjustments are made to account for defects and for superior attributes that the subject property has in comparison to the others.
HOUSE HUNTING TIP: The accuracy of a CMA depends on how well the agent knows the area, and on the quality and quantity of comparable sale information that is available at the time.
In many areas of the country, the number of homes sold is down considerably from years past. But, if there is relative consistency in the housing stock, establishing a probable sale price is relatively straightforward. In new or relatively new home developments, there is little variability between one housing model and the next.
However, in established neighborhoods that were developed over a long time span, say 70 years or so, finding reliable comparable sales can be difficult. Berkeley, Calif., for instance, was populated with summer cottages in the early 1900s and has been developing ever since. Not only is there variability in the age of homes, some have spectacular views and some don’t, and lot size varies as does the quality of construction. To complicate matters, some older homes have been remodeled nicely, some badly, and others have been let go to the extent that they are fixer-uppers.
Low sales volume in an area that lacks a standardized housing stock complicates matters. In some cases, there are not truly comparable sales in the area that have sold recently. In a changing market like we are currently experiencing, the most recent sales tell us the most about current market value. Sales from even three or four months ago can be out of date if the market is changing dramatically.
When there are no recent comparable sales, the only way to get a sense of a probable selling price range for a property is to look out of area or further back in time to find similar sold listings and make adjustments accordingly.
Sellers in this situation should be prepared to act quickly if they find that once they are on the market they’ve listed at a price that is too high given current conditions. A listing is most marketable when it is new on the market. Take advantage of the newness and adjust the price while the listing is still in the limelight. Once other new listings come on the market, buyers’ attention is directed elsewhere.
THE CLOSING: Sellers who suspect their list price is too low once they’re on the market should make sure their home is fully marketed before they accept an offer.
Dian Hymer is author of "House Hunting, The Take-Along Workbook for Home Buyers" and "Starting Out, The Complete Home Buyer’s Guide," Chronicle Books.
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