The housing market is complex. If you are buying a home, you want to make sure the price is fair. If you decide to sell your home, it is crucial to determine its worth. You want to get the most money while pricing it reasonably, so it won’t languish on the market. If you have a choice, you need to determine when the best time is to sell, what improvements you need to make to sell, and how to get the best return on your investment. A home market evaluation can take the guesswork out of home prices.
Creating a Home Market Evaluation
Several factors go into creating a home market evaluation.
Comparison to Other Homes
A home market evaluation (or comparative market analysis) begins by looking at your home and comparing it to current listings. Those listings need to be current (at least sold within the past year, but preferably sooner), in a similar neighborhood setting, and under the same types of market conditions. Homes should have similar features, such as the same number of bedrooms and bathrooms, similar square footage, similar lot size, and so on—the more features in common, the better the comparison. The idea is to see what the market will bear.
There are four category types of listings that are considered:
- Homes that have recently sold determine the current market value of homes in an area. Homes should have been sold recently and preferably in the same season. Homes sold in the winter often fetch a different price than homes that sell in the summer. If comparable homes are not found, expand the search.
- Homes currently listed for sale - Keep in mind that sellers can list a home for whatever they like. Unless it sells, it is not a good comparison, but it will give you a great idea. If the home is very similar to yours (on the same block, by the same builder, or in the same style), it is a good indication of price—the more differences in the home, the more wiggle room on the price point.
- Homes Pending Sale - While the final selling price is not often made public, the price indicates market direction. If many homes are under contract, it might be a hot market. If homes take several months to sell, factor this in as well.
- Expired and Canceled Home Listings - Expired listings are homes that were on the market for a while, and the contract term with the realtor expired. Canceled Listings are when sellers remove their homes from the market. Either one of these scenarios can happen for many reasons, one of which is that the asking price was too high.
A market evaluation will take homes from all of these categories into consideration. At least four or five comps are needed. While taking an average home price is a safe bet, there are more factors to consider.
Your Specific Home
Anyone doing a home market evaluation needs to look at your home in person. Start with these items and consider how they will increase or decrease the price.
- Home layout - Every home is unique. Even if you have five homes designed by the same builder with the same layout, the differences start to take shape once someone moves in. One person might use a room as an office, and some else might designate it a fourth bedroom. One might finish a basement, upgrade light fixtures, add hardwood floors, or install smart appliances. All of these might make a difference in a home price.
- Upkeep - Wear and tear can occur in any home. This can be evident in the condition of the floors, walls, railings, roof, siding, or deck. Even if someone buys a twenty-year-old home, they want it to look and feel their best. A house with a new roof might be worth more than one that will need the roof replaced in a few years. But, before you go off and make a ton of home improvements to sell your home, consider the price and return on investment.
- Landscaping - Besides the appearance of the siding, windows, trim, and roof, the size and layout of the yard are significant for some. Tall trees, privacy fencing, a swing set, a large deck, mowed grass, or garden space might make a difference to the right buyer.
- Neighborhood - Homes in desirable neighborhoods or near amenities may fetch a better price. If there is a pool down the street or very close to a subway station, it might be more sought after. Same time, a house at the end of a cul-de-sac might be more desirable than one on the corner of a busy street.
- Improvements - this is very subjective. Not everyone likes in-ground pools, green tile in the kitchen, or shag carpeting. Consider how it might affect the home’s value down the road when making upgrades. You might consider replacing the carpet before the sale to reach a wider audience. In general, new homeowners are looking for a blank slate.
Time to Price Your Home
Now that you have comparisons and have factored in upgrades, it’s time to set a price range.
- Determine your bottom-line price, including what you need to pay off your existing mortgage and cover closing costs and relocation expenses. Make sure your market value price does not fall below this amount.
- Determine whether you will make an improvement or build in an allowance for the new owner to complete the work.
- Take the prices of the homes gathered earlier. Determine average price per square foot. Take your home’s square foot and multiply it by this number.
- Decide where your property falls in these comparisons. The market value of your home is this number.
Be a Wise Home Buyer/Seller
Whether buying or selling a home, you want to make sure the price is right. The time to do this is before purchase or sale. Start by calculating the market price and then determine whether negotiations are in order. If the market price is too low or too high, and you have options, wait a bit. The housing market is dynamic; your realtor will make it work for you