If you’re looking at selling your home, it’s a really good time to do so. We’re on an upward swing in terms of property value.
Home value is definitely a key consideration, though. If you price your home too high, buyers who are looking at a lot of homes won’t bite. If you price too low, you’re leaving money on the table. If you price it just right, you could actually start a bidding war for your home. Buyers will see the value.
How do you get in that perfect pricing zone? We’ll share a couple of strategies you can use to make sure your price is something the market will accept. You may find that they even create a little competition. Finally, we’ll go over what the professionals look at during an appraisal to determine value.
Figuring out Your Home Value
There are three steps to getting a very accurate estimate of home value in order to attract multiple buyers and avoid surprises during the sale process.
The easiest way to establish a baseline for your home value is to take advantage of the massive amount of data available online. Home sites like Zillow and Trulia will measure your home values based on recent sales in the area.
We’ll give a little more into comparables below, but it’ll help you get a more accurate picture if you take a look at homes that are substantially similar to yours. You’ll have realistic sale prices.
Online sites aren’t the start and finish of your home pricing strategy, but it gives you a baseline. Then there are ways to drill down and get into more specifics.
Know Your Market
One way to refine your home pricing methodology is to really look at comparables in your local market. So what’s a comparable?
When pricing your home, you want to measure it against houses that are similar in your area. If you have a three-bedroom ranch with a recently renovated master bath, you should be looking at similar houses when you price. You definitely shouldn’t compare a bungalow to a colonial.
If you have the opportunity to go through any of these houses during an open house setting, it’s to your advantage to do so. Not only will you be able to see the types of materials being used, but you can really get a peek at how the home is staged. You can take anything you like and apply the same methods to your house with a similar layout.
Call in the Pros
According to the 2016 Profile of Home Buyers and Sellers from the National Association of REALTORS®, the average homeowner stays in their home for about 10 years. You just don’t go out and sell your house every day. It’s one of the things that makes it difficult to try to pin down a market value.
This is where bringing in a real estate pro can really help. Real estate agents like our friends at Rocket Homes show houses and find them for buyers for a living. They see a ton of properties and deal with this market every day. They know what the market will accept in terms of prices.
Understanding the Appraisal Process
If you are lucky enough to have someone pay cash for your home, congratulations! Your home free once you find a buyer. However, most buyers don’t have that kind of savings on hand and will be using a mortgage. This is another reason it’s important to price your home right. Let’s go over how that works.
When I was younger, my grandparents would come over once a week during the summer. This meant I would watch “The Price Is Right” every Wednesday morning. Anyone who watches that show knows you have to be closest to the actual retail price without going over when bidding on the show’s featured products.
Home appraisals are quite a bit like that. Mortgage investors like Fannie Mae, Freddie Mac, the FHA and VA don’t allow lenders to write a loan for more than the home is worth. There are a couple of reasons for this.
First, the property is collateral for the loan. If something unfortunate were to happen and your buyer had to foreclose, the lender or investor in the property then sells the house to get as much of their investment back as possible. They don’t want to approve a mortgage for $250,000 when they can get back only $200,000. It also protects the buyer from overpaying for a property.
In other words, if you’re asking price is $200,000 and the appraisal comes in at $190,000, your buyer would have to bring an additional $10,000 along with their down payment in order to close the loan.
It’s a competitive market so it’s possible that the buyer is willing to bring an additional amount to closing. That being said, if you’re realistic with your pricing, it’ll attract the most buyers because they’ll have more financing options available. That’s when you get that bidding war of people who would be willing to bring a little bit extra.
As you did earlier, the appraiser’s job is to go out and find comparables within a certain radius of your house. If you looked at truly comparable sales, the appraiser’s findings shouldn’t be much of a surprise when they come in. Doing your homework will make things go a little smoother.
The appraiser ultimately evaluates your house in comparison with these other similar houses in the area. When they’re done, they come back with their professional valuation of your home.
While there’s no substitute for an actual appraisal, hopefully following some of our tips helps you price your home in a manner that’s both realistic and creates competition. The appraisal process is definitely a key part of getting any home loan. In addition to evaluating the price, the appraiser must also make sure the property is safe.
Do you have any questions on how to price your home or the appraisal process? Let us know in the comments below.
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