If all locations were equally as valuable, and if all houses were the same, there would be no question as to how to price your home. But that isn't the case, of course. Every home is unique because of location, and home features vary as well. Here are three ways to price your house for sale.
1. Look at comparable listings
The typical way to determine how to price a home involves looking at recently sold homes as close to your location and home type as possible. Home type includes features like number of bedrooms, bathrooms, and total square footage. When you look at what homes comparable to yours have recently sold for, you get a good idea as to what your home would likely sell for.
Note that you should look at recently sold homes, not homes listed for sale. The former will give you a more accurate picture, as it tells you what actually happened, not simply what someone is asking for the home. Also, you can do this yourself, or if you use a real estate agent, they will perform this service for you. It's called a comparative market analysis (CMA).
2. Choose your strategy
Once you find about three comparable recently sold homes, you can play around with the listing price, depending on your philosophy and how fast you need to sell the home.
Some people price their home higher than the comps, hoping to get more than the neighbors did, and some do well with this strategy. But if the home doesn't appraise for the higher amount, the deal might not happen unless you lower the price or if the buyer wants to (and is able to) pay the higher price.
Other people like to price their home lower than the comps to bring attention to the home, perhaps starting a bidding war among buyers. That strategy could also be a winning one.
3. Consider the volatility of the market
What happens when the market is volatile or is a completely different market than one we've seen before, as is the case today? There are fewer homes for sale today than there's ever been. This is combined with high demand. Normally, that means prices are rising, and housing prices have indeed been going up. So should you ask more than the comps, anticipating prices are going to keep rising?
You could price higher in anticipation of continued appreciation in home prices, but that's a risky strategy. In fact, that's the exact strategy Zillow Group (NASDAQ:ZG) (NASDAQ:Z) was using with its Zillow Offers (iBuyer) program, a program that has since been disbanded.
Zillow was buying homes for more than market rate to ensure it would win them during this competitive homebuying climate. Plans were for Zillow to make minimal upgrades and then sell the homes for more than what Zillow paid, but Zillow couldn't get the price it anticipated getting for many of its acquisitions, and as a result has closed down Zillow Offers and has lost money in its iBuyer section.
The other problem you could encounter by asking more than market rate is, as mentioned above, the home might not appraise for the increased amount. If your buyer is getting a mortgage to buy the home, they probably won't get the loan amount they need, as lenders lend based on the appraised amount.
Pricing your home can be tricky
If you ask too much for your home, you might not make the sale. If you ask too little, you'll lose out on some money. The safest way to price your home is doing so based on the current market value, determined by checking out what comparable homes in your area have been selling for. In a volatile market, it's probably best to work with a real estate agent who likely knows the price changes from day to day and therefore, what you could realistically get for your home.