If you want to sell your house. Have you already chosen your quote price? A lot depends on that number. Getting your home priced right means the difference between a quick sale and months or years of hell. So, in an effort to educate sellers, I’m going to share how to find out the true value of your home.
Conventional wisdom will tell you to call a real estate agent or broker. They will tour your home and look for comparable sales in your area, then give you an opinion on your home’s value. But understand your motivations before you accept that number as fact. Simply put, agents will often tell you a higher number and assure you that it will be sold without any repairs because they want you to sign a listing agreement with them. It is human nature to choose the agent that gives you the highest number and the smallest repair list. Once you’re locked in, you can bet that when it doesn’t sell right away because your price is too high, they’ll start encouraging you to lower your price.
Not that asking an agent is a bad idea, but make sure you do your homework too. So how do you know how much your house is worth? Well, there are several ways, some more accurate than others.
The easy way is to simply search for your home on one of the home equity websites. It’s as easy as typing in your address and getting a number. The problem with these is that they are not very accurate because they cannot take into account the characteristics and problems of individual properties.
The proper way to do this is to search for recent sales in your area of homes comparable to yours. Then modify that number based on your own home and the properties around it.
Let’s take a look at the easy and correct ways in more depth:
Easy, but not very accurate
There are several websites that will give you an estimated value for your home. Zillow.com is probably the largest and best known. You type in an address and it will give you an estimate (they call it a “zestimate”) and a probable range of values for that house. It’s not bad, but it’s not great either. I find the zestimate is often a bit high, I suspect they are inflating the numbers so as not to anger their audience. I find the true market value to be lower, closer to the bottom of the estimated range. However, Zillow gives you a lot of other useful information. You can view price trends and sales history for homes, so you can see how long it took to sell and how many markdowns they had. You can also use the price/square foot of recent sales to calculate your home’s value by multiplying it by the square footage of finished space in your home.
Other sites you can check out include HouseValues.com and CyberHomes.com.
The correct and most accurate way
Any real estate professional, such as an agent, appraiser, or lender, will tell you that your home’s price range is determined by recent sales (within the last 6-12 months) of similar homes in your neighborhood. Most of the houses in a given neighborhood will be similar in age, style, and size. Even if there is variation, chances are there are several that are comparable to yours. What those comparable homes sell for sets the price range for your home. If all three recent comparable home sales in your neighborhood sold for $190k – $230k, then your home is probably not worth $295. Be as objective as possible and compare your home to those three. Don’t worry about assigning any value to your home’s additional features just yet, just compare your home to others based on features common to all homes. Specifically, how do your kitchen, bathrooms, floors, and systems (furnace, electrical, roof, windows, etc.) compare to those three recent sales? Let’s say yours is in the middle, neither worst nor best, so your home has a base value of $210k.
Good sites to find out recent sales in your area: Realtor.com (look for “Recently Sold” instead of “Homes For Sale”) and Zillow.com (once you find your home, scroll about 2/3 of the way down on the page and there is a link on the right “See sales similar to [your address]”), or you can go to your local tax advisor’s website and search for recent sales.
This base number is then modified by the advantages and disadvantages of your individual property. If it is in disrepair, the value of the house will be reduced. If you have extras that other homes don’t (like a large sun porch, bonus room, or upgraded kitchen/bath), the value will increase.
On negative items, the general rule of thumb is that repairs or items that are past due are subtracted directly from the base number, plus 10%. The 10% is essentially there to convince someone who likes the house to go through the pain and suffering of renovations after buying the house. So if your home has an old, outdated kitchen and bathrooms, and you need $25,000 to update them, then you should expect to deduct $27,500 from that base number. Even at that lower price, the house may not sell overnight. Today’s buyers want spotless homes. Renovations are a headache that buyers generally don’t want to deal with. With so many homes on the market, they can be picky.
Some larger issues, such as wet foundations, old electrical, leaky roofs, rotting trim/siding, and leaky pipes, are hard to quantify. Let’s say your base has a leak problem. The floor doesn’t even have to have standing water, it just has to be wet and stinky. Moisture could knock $10k off the price, more humid than that would knock $20-25k off the value of the house. Look at it this way, imagine you are considering two identical houses, but one has a wet basement. How much cheaper would the wet house have to be for you to choose it over the dry? See how those big problems have such a big effect on a home’s value? These bigger issues scare away buyers, and for buyers to overcome their fear of the issue, you need to come up with a very attractive price.
Unfortunately, extra features don’t directly translate to home value the same way negative ones do. That beautiful $25,000 sun porch you added doesn’t necessarily add $25,000 to your home’s value. You are probably only adding $10k to the value of your house. It’s a sad fact, but in a buyer’s market, all the numbers work in favor of the buyer, not the seller. It’s unfortunate, but that’s how it works.
So if your home has a base of $210k, needs $25k in renovations, has a wet basement, and has a porch that adds $10k to value, your home would be worth $172,500. That might sting, especially if you still have 2007 value in mind, but 2007 prices are gone. You can either accept it now and sell your house fast, or learn it the hard way through several price reductions over a very painful 12 to 18 months.
Of course you could fix those negatives yourself. But are you prepared to hire a good contractor (one who does the job right, is insured, licensed, and handles all permits and inspections), supervises him to make sure the job is done right, and pays out of pocket all those repairs ? In this market, it is unlikely that you will make a profit on your investment in repairs, but it could make the house sell faster. Or you could just sell it “as is” to someone like me, a real estate investor, save yourself months of work and worry, and get on with your life.
NOTE: The author has no relationship with any of the websites mentioned in this article.