How To Price A Property
How To Price A Property
By: Alex Bracke
I received a question from a seller client from Leesburg - Loudoun County - Virginia. He asked, "Hey, how do we go about pricing properties and how do we figure out what the best price is to list a property at?"
Pricing a property is a two-step process. The first step is what we would, in real estate agent speak, call “pulling comps”. When we “pull comps”, we look at homes that are similar to yours and try to figure out what was the market willing to bear for those homes.
So we want to look obviously at the size of the home. Certainly, we will try to look for a home that is roughly the same as yours. Does yours have a basement and theirs doesn't? We would prefer that they both either have or lack a basement. Is the total number of garage spaces the same? How big is the lot or the acreage size? These are just some of the important questions that we would need to answer.
Another thing to consider is geographic proximity to your home. If we can get other homes in the exact same neighborhood, that is a lot better than getting a home that is, say, three miles away.
Once we have a group of those listings, then we start dissecting the data a little bit. First, we look at how much you paid for your house when you bought it. What has the market done since then? Has the market gone up by 10%, down by 10% or whatever that is? We are going to apply that then to your original purchase price. The downside to doing this appreciation model is that it gets a little less reliable the longer the time frame is. If you have lived in your house for 25 to 30 years, it may not be the most accurate model. It may also not be accurate if you bought the home brand new or bought it as a fixer upper and you put a lot of work into it. That is going to skew the result. So, appreciation is probably the least reliable of the three models that we like to look at.
Price Per Square Foot
The second item that we will look at is the price per square foot. We figure out what is the sale price of the homes that are selling in your neighborhood. We then divide the sale price of the homes by how many square feet that they have. That gives us a rough estimate relative to the size of the home. Now, again, there is no silver bullet here. There is no one size fits all. So, if you are looking at a home that is 3000 square feet, and one of the comps is 2300 square feet, we would expect that the price per square foot will be actually higher on the smaller home than it will be on the larger one. We have to take this into account.
Percentage Of Taxable Value
The third one that we will look at is the percentage of taxable value. I like to use this because in a price per square foot model, there are certain things that are not taken into account like the size of the yard (price per square foot is only talking about how much space is inside the house); Garage spaces are not factored into a price per square foot model; Unfinished basements are not factored in as well. Anything outside the house such as decks, patios, pools are sometimes not factored into a price per square foot model, whereas it would be potentially accounted for in the tax assessment. And so, if we can see that most of the homes in the neighborhood are selling for 20% above their tax assessed value, then that gives us a rough idea as to where your home might also land.
We use these three models: appreciation, price per square foot, and percentage of taxable value. I will weight them differently depending on which one is going to be the most accurate in a particular situation. Then, we come up with a rough estimate as to where we think your home's value will fall. Just like all things again, that is not a perfect way to go about it because, obviously, when the market is appreciating really quickly, we have to take that into account, too. If the homes where we are looking at are comparable homes and those all sold eight months ago, in a market that is appreciating or depreciating really quickly, then that is going to be a problem.
DECIDE ON THE LIST PRICE
The second step is deciding on the list price. Now that we know roughly what valuation we expect the market to bear for your home, then you have a decision to make. For list price, do you want to list above the estimate, do you want to list on par or do you want to list below? There are pros and cons to all three. I have listed homes using all three of those strategies. All three of them can and could potentially work. They are just better suited for the seller's individual situation. That is part of what we will talk about and strategize when we meet.
If you ever have questions, whether it is about selling or buying a home, or even renting a property, never hesitate to reach out. Call me at 571-393-1082 or email [email protected].
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