One of the most difficult parts of selling your home occurs before you even place it on the market: determining its listing price. Coming up with a realistic number can be a confusing process, as a home is ultimately worth what it is paid for it. Everything else is really an estimate of value.
Take, for example, a hot seller's market when demand for housing is high but the inventory of available homes for sale is low. During this time, homes can sell above and beyond the asking price as buyers bid up the price. The fair market value, or worth, is established when “a meeting of the minds” between the buyer and the seller takes place.
So how do you decide what your home is worth? “A comparative market analysis and an appraisal are the two most common and reliable ways to determine a home's value,” explains Dan Kruse, President & CEO of Century 21 Affiliated .
Your real estate agent can provide a comparative market analysis, an informal estimate of value based on the recent selling price of similar neighborhood properties. “Reviewing comparable homes that have sold within the past year along with the listing, or asking, price on current homes for sale should prevent you from over or under pricing,” suggests Kruse.
In order to find the appraisal price, a certified appraiser is needed. After visiting the home to check such things as the number of rooms, improvements, size and square footage, construction quality, and the condition of the neighborhood, the appraiser then reviews recent comparable sales to determine the estimated value of the home.
However, it is often the buyer—not the listing party—who brings in the appraiser. Lenders normally require an appraisal – which run between $200 to $300 – before they will approve a mortgage loan. This protects the lender by ensuring the home is worth the money you want to borrow.
“You also can check recent sales in public records, through private firms, and on the Internet to help you determine a home’s potential worth,” notes Kruse.
Below are some other points you will have to understand when finding a listing price:
List price vs. sales price
You probably hear both terms being tossed around, and it may be causing some confusion. The list price is a seller's advertised price, or asking price, for a home. It is a rough estimate of what the seller wants to complete a home sale. A seller can price high, low – which does not happen very often – or very close to what they hope to get. “A good way to determine if the list price is a fair one is to look at the sales prices of similar homes that have recently sold in the area,” notes Kruse.
The sales price is the actual amount a home sells for.
What about appraised value and market value?
“A certified appraiser who is trained to provide the estimated value of a home determines its appraised value,” Kruse explains. The appraised value is based on comparable sales, the condition of the property, and several other factors.
Market value is the price the house will bring at a given point in time, once the buyer and seller establish a “meeting of the minds” on price.
Utilize our free Home Evaluation tool to get a quick determinate of your home's value. For a more accurate portrayal of your home's value it is best to contact a real estate professional for a comparative market analysis.