How To Price A Listing Accurately
If you want to price a listing accurately there are certain things that you’ll want to avoid doing. In my 25+ years as a real estate appraiser, I have seen numerous reasons that the appraisal and contract do not match up.
Appraisers have been accused of being deal killers but in reality, many of these deals were dead from the start because the price was not realistic.
There are two main reasons for this and they include using inaccurate information to price the home and not basing the list price on relevant market data.
Using inaccurate information usually occurs when estimating the gross living area of a home. It can also happen when the size of the lot is wrong.
The second reason happens when the wrong comparables are used. Today we’re going to see what this looks like during the pricing process. Do you have any thoughts? Leave a comment below and let’s keep the conversation going.
9 Things You Must Avoid Doing If You Want To Price A Listing Accurately
1) Only Use Price Per Square Foot- Agents should avoid using just the price per square foot to price a listing. This is only one metric of many, so to only consider it would be to exclude other value indicators that could help price the listing more accurately.
Price per square foot can be deceiving. If you only use sales of homes smaller than yours then this will give you a price per square foot that is higher than it should be.
If you use homes that are larger, then the price per square foot will be lower. If you use sales that are smaller and larger this will give you a more accurate range that you can then reconcile to the subject.
The reason that you should do this is because properties that are larger tend to sell for less per square foot and those that are smaller sell for more. Using a range of properties that are both smaller and larger is called bracketing and will provide less skewed results.
2) Use County Records For GLA- County records are notorious for having inaccurate square footage information. Since an important part of pricing a home is having accurate square footage information it’s important that this be correct.
There are some instances where this information may be more accurate than others. If your home is one story built on a slab or crawlspace it will most likely be more accurate than one that is multi-story built over a basement.
Your best bet is to use information from a previous appraisal, builder plans, or to get an appraiser to measure it for you. This will go a long way in your pricing accuracy.
3) Go outside of the neighborhood when there are good sales from within- I’m always asked about how to choose the best comps when pricing a home. While there are many different criteria one that is a good place to start is to look in the subject’s neighborhood.
Using sales from within the neighborhood will provide the most accurate indication of value. With that being said, I still see some agents going outside of the immediate subdivision to other areas that may not be as similar.
My advice to agents is to use the same criteria and techniques that appraisers use so that the results will be similar. By doing this the likelihood of homes not appraising when they go under contract will be reduced.
If there are recent and similar sales from within the neighborhood agents should use them because that is what the appraiser will use. Going outside of the neighborhood when good sales exist from within will increase the chances of the home not appraising.
4) Use the owners suggested price- This doesn’t happen much but I thought it was worth mentioning. In the past agents have told me that they listed the home for what the sellers wanted to get out of it.
I don’t recommend this because the price is not based on market sales. The seller’s recommendation is typically based on what they have in the house, however, this may be different than what the comparable sales indicate.
One of the most difficult things for homeowners to understand is that cost does not always equal value. In the most recent cost vs value update, none of the improvements listed returned more value than they cost and most were actually less. This illustrates the point that just because you put in $25,000 worth of landscaping the value of your home will not automatically increase by that same amount.
5) Use the Zillow Zestimate- Despite a recent ruling in favor of Zillow many people still believe that the Zillow Zestimate is still a reliable value to base an asking price on or to base an offer on. The ruling was brought on by a lawsuit from homeowners that stated that their home’s value was being hurt because buyers were using the Zestimate to help them make an offer on the home.
The Zestimate was lower than what the true value of the home was but because consumers believe the Zestimate the sellers could not sell their home for what it was actually worth. The bottom line is that the courts said that the Zestimate is not meant to be an appraisal.
While we didn’t really need to the courts to tell us something we already know, sellers should use this court case as a wake-up call that they should not be using the Zestimate in place of a legitimate appraisal or CMA that is done by an experienced and knowledgeable real estate agent. Educating consumers on this will hopefully make them more aware of the shortcomings of the Zestimate.
6) Lump basement and porch areas into the GLA- As I have noted previously, having correct square footage is essential in accurately pricing a listing.
Appraisers are required to segregate the various areas of a house. While all areas of a home contribute to value each area does not add the same amount. Finished and unfinished basements, as well as porches and deck, have value but they should not be included with the gross living area of the home.
If you lump all of these areas together you will overstate the total living area and overprice the home. If agents follow the same methods the appraiser uses to calculate gross living area then they will come up with a more accurate list price.
7) Only look at homes larger than the subject- If you only use sales that are larger or sold for more than what you think yours is worth then you will most likely overprice it.
This is why it is important to bracket the gross living area when choosing comps. By doing this the range of value will be more reliable because it reflects homes that are both larger and smaller than the subject.
8) Use the tax assessment value- Tax assessment value does not always accurately reflect the current market value. The methods the county uses to value property are based on mass appraisal techniques and does not take each individual properties condition and features as much into consideration as an appraisal done by a fee home appraiser.
County appraisers do not visit and walk through the inside of every property they appraise and they may be working with inaccurate square footage. Without accurate data to choose the most relevant comparables, it is difficult to produce an accurate market value so the assessed value should not be used.
9) Ignore listings and pendings- In order to get the most accurate market value active and pending listings should not be ignored. The market value of a house takes into consideration supply and demand within the area.
By looking at what other comparable properties are currently listed for you can get an idea of what the competition looks like. If there are numerous other comparable properties listed for sale these should be considered because a knowledgeable buyer would also consider them and would probably not pay more for yours than they would others that are listed.
Pending sales give us a snapshot of what is currently happening and provide a good balance of data combined with recently closed sales and active listings. By looking at all of these value indicators a more reliable list price can be developed.
Conclusion
Do you have any other questions about what you can do to price your listings accurately? If so, leave a comment below and I’ll do my best to answer it for you. As always, thanks for reading.
I’ve learned so much from you! How important is it to only compare apples with apples? To only use capes for instance when subject is a cape? If for example a house within the desired area is a ranch, similar sq ft, bdrs and baths?
I think we have to look at the sales data. I would bracket all the physical characteristics of the home like square footage, age, and bedroom bath, etc. across all architectural styles and see if there are any price differences. If they are all pretty much the same then style may not be such a big deal.
This just goes to show there are many moving parts when it comes to comp selection. It’s pretty easy if there are 20 model matches, but not so easy when an area is unique and every other house is different. Great tips Tom.
That’s definitely true, Ryan. I think that is where agents may get a curve ball thrown at them. When they get a property in an area where comps are not so cut and dried it is good to know criteria you should focus on that will provide a more accurate indication so value.