By Ken Urman, Realtor
To many people, the factors that contribute to the way a
home is priced for sale seem mysterious. In fact, this is one of the most
common questions asked by sellers and by some buyers. The seven factors
considered by most realtors and appraisers to set a sale price are actually not
mysterious at all. However, there are many factors that affect selling price,
and no two homes are identical.
(1) Local
Real Estate Market Conditions
In the Seattle-Bellevue-Mercer Island area today, these
conditions are very important. We are currently experiencing a shortage of
homes for sale and an abundance of potential buyers. In business terms, demand
is far greater than the available supply. This is called a Seller’s Market. Typically, sellers are able to ask higher prices
and find buyers willing to pay the asking price or more to own a desirable
home. Sometimes, there are multiple bids for desirable available homes, which
results in competition and even bidding wars. This is the first type of market.
The second type of market is called a Buyer’s Market. Under these conditions, there are typically more
homes available for sale than there are buyers. Sometimes, either listing
prices are reduced or homes remain available for some time, with some not
selling at all.
The third type of market, a Balanced Market, is characterized by some equality between the
number of homes for sale and the number of potential buyers prepared to
purchase them. In terms of both buyer and seller interests, this is the most
desirable type of local real estate market.
Other factors that can influence local market conditions
include:
· Some change affecting major local employers, especially a leading employer moving to the area or leaving the area
· Local Schools and their public rankings.
· Transportation improvements. For example; new light rail lines going into many areas.
(2) Comparable
Market Analysis
In setting a listing price for a home, many Realtors conduct
a Comparable Market Analysis (CMA).
This process identifies homes that are “comparable” to the seller’s home and
compares the “selling price” of these homes. There are two primary reasons
experienced professionals use a CMA: first, it helps to establish a base price
based on what buyers are willing to pay for a comparable home at the current
time, and, second, it helps the Realtor keep the listing price within a range
of what lenders will accept as a reasonable price for the home.
Mortgage lenders typically look for at least three
comparable home sales occurring in the last 12 months at roughly the same
price. If a selling price negotiated between buyer and seller is too high, the
bank may not approve the loan. However, your local Realtor will often have a
better sense of the current market climate than an appraiser. When lenders challenge the price, the
seller’s Realtor can usually explain the pricing justification and resolve most
problems with lender appraisals.
(3) Factors
Based on Location and Neighborhood Characteristics
We often hear the phrase, “location, location, location” in
connection with home prices and desirability. In calculating the price of a
home, location refers to the geographical location of the property. Is the
property located across the street from a busy shopping center, or at the edge
of an industrial/manufacturing zone? Is the home within city limits or in a
suburb? Is it located on a busy road or is it on a quiet street in a
residential neighborhood. Is it proximate to an airport, railroad tracks,
high-voltage power lines, or an expressway?
Characteristics of the neighborhood in which the home is
located also influence price. Is the home located in an older, established and
thriving neighborhood or in a decaying neighborhood? Is it located in a
high-crime area? Is the neighborhood considered desirable? Is it typically
populated by white collar executives and professionals, by middle class people,
or is it a subsidized neighborhood? How are the schools rated? What local
amenities are nearby (parks, shopping, hospital, entertainment venues,
restaurants, etc.)? Is public transportation available? How does the tax rate
for the neighborhood compare to other neighborhoods? Is the home on the
waterfront? Does the home offer spectacular views?
All of these location and neighborhood characteristics can
affect the listing and selling price of a home in any area. An experienced
professional Realtor is a great benefit in assessing these factors and how they
affect pricing due to his/her extensive knowledge of local communities and
neighborhoods.
(4) Upgrades
and Other Special Features of the Property
No two houses, even if built with the same floor plan, are
identical. They might be differentiated by features of the yard or upgrades and
additions to the home. These features are important factors in pricing a home.
If the upgrades and additions are desirable to potential buyers, at the time of
the sale, they will influence the price upwards. If they are not desirable or
are poorly done, they might influence the price downwards. The right upgrades
to a home will also make it sell faster once it is listed.
Among the most desirable upgrades and additions to homes on
the market today are:
· Energy efficient windows, doors, appliances, roofing, etc.
· Garage (usually attached)
· Smart-home features
· Decks, landscaping, outdoor kitchen
· Upgraded bathrooms
· First floor master bedroom or single-level living
· Security systems
(5) Motivation
of Buyer and/or Seller
The urgency of the need or desire to sell or buy a home can
also influence the selling price. Often, people who need to sell quickly
(perhaps because they are being transferred to another city) are willing to
make some concessions on listing price in order to make a quick sale.
Similarly, some people who like a home and need to buy quickly will offer a
higher price for the home they want if, for example, they want to move in
before the beginning of a new school year.
Occasionally, sellers who are in no hurry to finalize a deal
will overprice a home. The result is often that buyers overlook the home
(because of price), and in time it becomes known as “the house nobody wants.”
In this case, I typically advise the sellers to wait until they are motivated
to sell before they list their home on the market.
(6) Choice
of Local Realtor
All Real Estate agents are not the same. Your choice of a
local agent, whether you are the seller or the buyer, can become a factor in
the price of a home. An inexperienced or incompetent agent can cost either
party to a real estate transaction.
Sellers need agents who will do far more than list a
property with the Multiple Listing Service and hope it is seen by the right
person. A seller’s agent should price the house carefully, actively market the
home, and be a strong negotiator on your behalf. In addition, I believe it is
important to choose a full-time, experienced professional Realtor (a member of
the National Board of Realtors) with a strong track record in the area, who is
honest and creative in listing and selling your home and attending to every
detail related to the closing of the transaction.
These are the top 6 factors in pricing a home for sale. If
you would like to know more about how these factors affect the listing price of
your home, please give me a call. I would be pleased to put my experience,
knowledge and professionalism to work for you. And remember, I’ll bring the
coffee.
