Your Property’s Value – A Market Analysis

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Pricing Your Home to Sell:

Determining the appropriate price to list your home is the single most important factor in the selling process. Price it too low and you might sell it quickly, but you unnecessarily give up some of your equity dollars to the buyer. Price it too high and you will lose some of the home’s appeal and freshness after the first few weeks of showings. Agents pay MOST attention to homes newly listed on the market. Realtors® subscribe to their local real estate Multiple Listing Service (MLS). The MLS database has a feature which produces what are known as “Hot Sheets”. The Hot Sheets track many different daily changes in the MLS listings, but are most often used by Realtors® to identify “New Listings”.

Often within the market area, there are real estate office previews and MLS tours which focus on new listings of homes, so a lot of attention is focused on what is NEW. This is why starting off with correct pricing is so critically important. You may think, I will price it on the high side, but I’m willing to negotiate if I have to. There are two very big problems with this strategy. Firstly, buyers have no way of knowing if you’re willing to negotiate or by how much. They are comparing your asking price to other asking prices. Secondly, if you happen to sell your home at an inflated price, most contracts contain a provision that the home must appraise at the sales price or higher. If it doesn’t appraise at this level, the buyer has the option of canceling the contract and getting any deposited funds back. Suffice it to say, a properly priced home gets attention, and an overpriced home mostly gets passed over.

So where does the pricing process start?

With a Comparative Market Analysis (CMA):

What is a CMA? (Hint….it’s not a Country Music Award). It’s also not a Certified Appraisal! The American Heritage® Dictionary of Business Terms defines it as follows: An informal evaluation of a property’s market value by researching the prices at which similar properties sold within the last year. A comparative market analysis is generally undertaken in order to establish a price at which to list the property for sale. Pricing is all about supply and demand. The CMA process starts with pulling Comparable Listings and Sales data (Comps) for the subject property (YOUR HOME). Realtors® access these listings through their local Multiple Listing Service (MLS). The “Comps” should include listings that have Sold within the last year (as in the definition above), and we also advocate reviewing listings which are Pending Sale and Currently Active. These last two categories help in the analysis by reflecting most recent market price conditions. In a perfect world, the Comp listings selected should contain homes within your neighborhood, or no more than ½ mile away. This is obviously not possible if there are only a handful of comparables in the general vicinity, or if the property is in a rural area.

The MLS Filters for the Listings Data Should Match the Comps as Closely as Possible to Your Home By:

  • Selecting similar types of homes (i.e., single family site built /townhomes/condos, etc.)
  • Selecting homes of similar age.
  • Selecting homes with similar square footage.
  • Selecting homes with similar lot size or acreage.
  • Selecting homes with similar features (garages, fireplaces, # of bathrooms, # of bedrooms, etc.)

Once the Comps have been carefully selected, it will likely be necessary to adjust pricing for significant differences in the Comps and your home for the above items. The adjustments will need to reflect local market pricing norms, and may differ from County to County and City to City. For example, the Comp pricing adjustments for square footage differences will be different for Chapel Hill vs. rural Orange or Durham Counties, and even more strikingly different than say, Elkin and the Yadkin Valley Wine Region. This is where good local market knowledge by the Realtor® comes into play.

To be clear, the pricing adjustments are applied to the Comparables Sales Price amount to make them as closely match the features and characteristics of your home as possible. To quote overused terminology, it is an“Apples to Apples” and “Oranges to Oranges” comparison approach. A few simple adjustment examples may be useful. Suppose your home has a fireplace, 4 bedrooms, 3 full baths and a double garage. Comp #1 sold for $400,000, has a fireplace, 4 bedrooms, only 2 full baths, with a one half-bath and a double garage, and also has a large separate workshop. Comp #2 sold for $377,000, has no fireplace, 4 bedrooms, 2 full baths and a single garage.

Using “hypothetical” local price adjustment norms for differences, adjustments to the Comps for your home may look something like what is listed below.

Adjustments to Comp #1: Amount
Sales Price
$400,000
Adjust for 1/2 bath vs. full bath your home
$1,500
Adjust for Workshop vs. no Workshop your home
($7,500)
Comparable #1 as Adjusted
$394,000
Adjustments to Comp #2: Amount
Sales Price
$377,000
Adjust for no fireplace vs. one fireplace your home
$1,500
Adjust for 2 full baths vs. 3 full baths your home
$5,000
Adjust for one car garage vs. 2 car garage your home
$10,000
Comparable #2 as Adjusted
$393,500

As can be seen from the discussion and data above, a comprehensive Comparative Market Analysis of your home is a critical part of your selling plan and strategy. It’s been described as part science, part art, combined with knowledgeable skill.

Allow Dream Maker Properties to use our skills and knowledge to assist you.

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