Do you know how much your home is worth? I am sure when asked this, the average home seller knows how much they would need to break even, how much the house across the street sold for or how much they would “like” to get for their home. But in this highly competitive buyer’s market, pricing your home properly makes all of the difference between selling your home quickly for a profit or sitting on the market for years.
As a former bank credit analysis, putting values on homes was my primary objective anytime I did underwriting on home mortgages. I can tell you without hesitation, that the first and best place sellers should go to determine their home’s value is their county assessor’s internet homepage. These websites, which can easily be found doing a Yahoo or Google search, provide you with a one stop shop for finding the comparables needed to determine your house’s value. The key word being comparables, or “comp” homes; with the goal of find 7 or 8 good comparisons to determine your home’s value. When searching for comps, the following criteria always need to be considered:
Sale Date
Shoot for sale dates within the last 6 months; preferably within the last 3 months. What the house across the street went for 2 years ago has absolutely no bearing on the currently value of your home.
Type of Sale
Let’s face it; most locations across the US have a bevy of distressed properties being sold as foreclosures or short-sales. This obviously has a big impact on sales prices in your area. However if you are like a majority of Americans and are current with their mortgage; you need to compare your house to other homes in the area sold as “Normal Arms-Length Transactions”. Otherwise, you can easily underestimate its value by comparing it to those sold by banks or at sheriff auctions.
Type or Style of Home
One story or two? House, townhome or condo? Frame, stucco or brick? If you are living in a 2 story brick home, the fact that your neighbor just sold his ranch style house for $180,000 doesn’t tell you anything. Be sure to only compare similar styled homes.
Square Feet
Of the 5 criteria listed, square footage probably has the most wiggle room in your calculation. My standard rule of thumb is as follows: if your home is under 2500 square feet, try to compare homes that are +/- 100 square feet (meaning if your house is 1500 square feet, search homes between 1400 and 1600 square feet). For homes between 2500 and 5000 square feet, increase the range to 250 square feet; and for homes over 5000 square feet, increase the range to +/- 500 square feet.
Location
Location, location, location. Unless you live in a community with a population under 25,000; location is everything. Only compare homes within a 10 block radius.
After running the numbers, you should end up with several comparables. If you finish with more than 20 comps, consider tightening your criteria standards to lower the number of comparables down to 7 or 8. If you only have 1 or 2, the opposite is true and you should loosen your requirements until you have that magical number of 7 or 8 comps.
With this list, narrow those 7 or 8 comps to the 3 homes that are most like your home. Finally, add up the sales prices of these 3 homes and divide by 3 to get the average comparable price. For example, if one comp sold for $200,000; another for $210,000 and the other for $220,000; the average comparable price would be $210,000 (630,000/3 = 210,000). That average comparable price is pretty darn good estimate of what your home’s value currently is today and roughly what you should expect when selling your home.