Believe it or not, self-appraising the value of your house before you list it for sale is almost a science. The key word here is “almost” — and it would behoove any self-respecting owner who intends to put their home on the market to do a hard, well thought-out analysis.
Let’s first add some context. Many sellers’ gut reaction is to “see what we can get” for their home. Translation: Let’s set the price as high as possible and play our cards; and if we absolutely must lower it, we’ll decrease it in baby steps, inch by inch. It’s only basic human instinct to think this way.
While your home is an asset sitting somewhere on the liquidity scale in your personal finances, it is not a share of stock on the market being compared to thousands of similar investments in an open trading exchange minute by minute. Don’t confuse the two. Over-appraising your beloved home before you list it on the market can have consequences — namely time wasted, resources spent, personal regret, financial disappointment, and unmet household budgetary expectations.
You’ll want to price it as appropriately as possible. It’s a difficult-but-worthy effort. Your real estate agent could be of great assistance in this process, or he or she may not be. It really depends on the agent and his or her perspective. Most agents will help you price your home judiciously, although you are the client. That means your agent may bend-in to your inflated desires if they see there’s no changing your mind. Plus, the sales commission is higher if the house sells for higher.
To set the record straight, at the end of the day it doesn’t matter what price you set your home at since an official licensed appraiser will establish the value during escrow. Whether or not you and the buyer agree or not with the appraisal is a different conversation for another day. Volumes of books could be filled with the rants of agents, sellers and buyers who didn’t see eye to eye on the arms-distanced, “objective” value given by an appraiser — and whether a second appraisal is warranted.
Still, you’ll want to get into the nitty-gritty of how your home compares with local “comparables” or “comps” in the neighborhood. We’re talking very hyper-local and very detailed. Are you comparing your home to another house with nearly the same square footage, approximate age, amenities, upgrades (or not), and number of rooms, bathrooms, garage space, and outside property characteristics? Are your comps located in a few-block radius of your home, or in your greater neighborhood area, or within the generic half-mile vicinity?
Are you comparing to a one-month review of sold properties in the area or up to three months? Are you considering what season your comps were sold in, as well as how many other homes were on the market in those seasons compared to the season you’re selling in right now? All these factors matter.
Sellers can go through sticker shock when they build an over-inflated perception of their home’s value within their minds, only to see the real escrow appraisal come in $10,000 lower or even more. You don’t want to suffer this anxiety. Normally, future household budgets and spending are founded on how much equity will be cashed out after a home sale. Nobody wants to be surprised by netting $5,000, $10,000 or up to $20,000 less in hard cash.
On the other hand, also be sure not to under-value your home before listing it. This usually isn’t the case for sellers, although it’s not unheard of. Beware the mentality of: “We have so much equity, let’s just sell it and get out of town.” If you really don’t have to, you could be leaving thousands of dollars on the table.
Pricing your home is not an exact science. Make your life easier by judging what a “fair” value might be even before you list it. An approximation is fine, as long as you’re open to being flexible along the way. A closer-than-not valuation before listing will make everyone’s life easier — seller, buyer and agents — along the way.