So, you want to sell your house. Have you already chosen your offer price? A lot of people drive on that number. If your home is priced right, it can mean the difference between a quick sale and months or years of hell. So, in an effort to educate sellers, I’m going to tell you how to find out what your home is really worth.
Conventional wisdom will tell you to engage a broker or broker. They will visit your home, look up comparable sales in your area, and then give you an opinion on the value of your home. But please understand their rationale before accepting that number as fact. In a nutshell, agents will often tell you a higher number and assure you that it will sell without making repairs because they want you to sign an offer 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 stuck, rest assured that if it doesn’t sell right away because your price is too high, they’ll encourage you to lower your price.
Not that it’s a bad idea to ask an agent, but make sure you do your homework too. So, how do you find out what your house is worth? Well, there are several ways, some more accurate than others.
The easy way is to just look up your home on one of the home value websites. It’s as simple as entering your address and getting a number. The problem with this is that they are not very accurate because they cannot account for the characteristics and problems of individual properties.
The proper way to do this is to look up recent sales in your area of homes that are similar to yours. Then adjust that number based on your own home and the properties around you.
Let’s take a closer look at the easy and right ways:
easy, but not very accurate.
There are several websites that will give you an approximate value for your home. Zillow.com is probably the largest and best known. You type in an address and it gives you an estimate (they call it an “estimate”) and a likely range of values for that house. It’s not bad, but not great either. I find the pit is often a bit high. I guess they inflate the numbers so as not to piss off their audience. I find the actual market value is lower, closer to the bottom of the estimated range. However, Zillow gives you a lot of other useful information. You can see price trends and home sales history, so you can see how long it took to sell and how many price reductions they had.
Other sites to check out include HouseValues.com and CyberHomes.com.
properly and most accurately.
Any real estate professional, such as a real estate agent, appraiser, or lender, will tell you that the price range for your home is determined by the recent sales (in the past 6–12 months) of comparable homes in your area. Most homes in a given neighbourhood will be of the same age, style, and size. Even if there is variety, chances are there will be several that are similar to yours. What those comparable homes sell for determines the price range for your home. If the three recent sales of comparable homes in your area sold for $190,000-$230k, your home is probably not worth $295. Be as objective as you can and compare your home to those three. Don’t worry about assigning value to bonus elements of your house just yet; just compare your house to the others based on the common features in all the houses. In particular, how do your kitchen, bathrooms, floors, and systems (oven, electrical, roof, windows, etc.) compare to those three recent sales? Let’s say yours is in between, not the worst or the best, so your home has a base value of $210k.
Good sites to find the recent sales in your area are Realtor.com (search for “Recently Sold” instead of “Homes For Sale”) and Zillow.com (once you find your home, browse about 2/3 of the way down the page and there’s 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 basis is then changed by the pluses and minuses of your individual home. If it is in bad shape, the value of the house will be reduced. If it has extras that other houses don’t (such as a large porch, bonus room, or premium kitchen or bathroom), then its value is increased.
For negative items, the rule of thumb is that items that are repaired or items that are obsolete are immediately subtracted from the base number, plus 10%. The 10% is essentially there to convince someone who loves 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 needs $25k to update them, then you should expect to subtract $27,500 from that base number. Even at that lower price, the house may not have sold overnight. Buyers today want pristine homes. Renovations are a headache buyers generally don’t want to face. With so many homes on the market, they can be picky.
Some bigger problems, like wet basements, old electricity, leaking roofs, rotten cladding and siding, and leaky plumbing, are hard to quantify. Suppose your basement has a leakage problem. The floor doesn’t even have to have standing water, just be damp and smelly. Moisture can knock $10k off the price. Wetter than that will knock $20k-25k off the home’s value. Look at it this way: pretend you’re considering two equal houses, but one has a wet basement. How much cheaper should the wet house be to make you prefer it over the dry? See how those big problems have such a big impact on a home’s value? These bigger problems deter buyers, and to get buyers over their fear of the problem, you need to present a very attractive price.
Unfortunately, extra features don’t translate directly to the home’s value in the same way that negatives do. That nice $25,000 porch you added doesn’t necessarily add $25k to your home’s value. You are probably only adding $10k to the value of your home. It’s a sad fact, but in a buyer’s market, all the numbers work in favour of the buyer, not the seller. It’s a shame, but that’s how it works.
So, if your home has a base value of $210k, requires $25k in renovations, has a wet basement, and a porch that adds $10k to the value, it is worth $172,500.That can hurt, especially if you still had a 2007 value in mind, but 2007 prices are long gone. You can accept it now and sell your house quickly, or learn it the hard way through several price cuts over a very painful 12–18 month period.
You can, of course, solve those drawbacks yourself. But are you willing to hire a good contractor (one who does the job well, is insured, licensed, and handles all permits and inspections), check them to make sure the job is done right, and pay out of pocket for all those repairs? In this market, you probably won’t make a profit on your repair investment, but it can help the house sell faster. Or you can just sell it “as is” to someone like me, a real estate investor, and save months of work and worry, and get on with your life.