“How much is my house worth?” is the critical question anyone considering putting their home on the market is asking themselves. “How can I sell my home for what it is actually worth?” is the second question home sellers ask.
The challenge is that there is no easy way for home sellers to figure out how to price their property on their own.
At first, it seems like there is plenty of help to be found when setting a sale price, as Realtors often offer to conduct a free property assessment of your home. The purpose is to provide you with a price that acts as a starting point when you put your home on the Victoria housing market.
But in reality, how valuable is this free home evaluation as a property assessment?
As anyone selling their home knows, you can ask three different agents for an evaluation, and you’ll likely get three different prices for your home. Which price is accurate?
“Comparable Market Analysis” is often used to provide an objective look at the comparable value of a property.
However, the challenge for home sellers is that along with varying levels of experience, each potential agent will have a different approach, business model, and method of choosing properties.
This difference in approach to the art and science of pricing a home for sale may affect the results of the property assessment and the price they suggest for your home.
To make sure your home goes on the market at the right price, we have prepared this four-part guide to comparative market analysis for home sellers.
Part 1: Use Comparable Properties When Conducting Your Property Assessment
However, finding truly comparable properties can be challenging and some interpretation of the data is common as part of a home evaluation.
The Danger of Pricing Your Home Too High
This is a common and quite natural question many homeowners ask a potential agent.
Since agents are sometimes hired based on the price they suggest to the home seller, some may be overly optimistic in order to win your listing: their market analysis will suggest your home can be sold for a high price which is less likely to be obtainable.
“Hope springs eternal” and a high selling price is a win for the home seller and the REALTOR® who tends to get paid more for a higher sale price. However, many overpriced homes languish on market and if you are truly motivated to sell, you will eventually have to lower your price to a “selling” range.
This approach doesn’t really do you any favours; you lose time, experience opportunity costs, and spend a lot of energy making the home available for showing after showing as your overpriced home languishes on the market.
An additional danger of overpricing a home is that “stale” homes that have been on the market longer tend to need even lower prices than newly listed homes in order to attract buyer attention.
Watch Out: Agents Sometimes Recommend a Price That’s Too Low
Other real estate agents may low-ball a price in the hope of generating multiple offers that are then followed by a quick sale and fast paycheck.However, while it is true that a strategy of lower pricing can sometimes create a bidding war for a highly desirable home in a hot market, pricing a home too low can also backfire and is a risky strategy.
For example, buyers often don’t wish to compete by bidding up the price of a low-priced home.
In fact, many potential buyers can be very suspicious of low-priced homes, assuming something is wrong with the house.So, when buyers do make an offer on a low-priced home, they make an offer that’s lower still than they would for a home priced at a more reasonable – and realistic – price point.
You may be able to sell your home more quickly, but you will lose money on the sale.
Part 2: How to Evaluate a Potential Realtor
- Their listings tend to stay on market longer than average
- If they tend to relist the same properties over and over again
- There is a significant difference is between the original listing price and the eventual sale price
Keeping in mind that above asking price can still be below market value, you’ll note a pattern.
But also remember that agents don’t always set the price. And a good agent will discuss all the various strategies and options so that you as the client can choose the most reasonable method for selling based on your unique situation.
Finally, be sure to review a potential agent’s marketing materials, such as photos, floor plans, virtual tours and videos.
Proper marketing is required in order to achieve top dollar regardless of market analysis results.
Part 3: Understand Common Real Estate Myths
I’d like to identify and debunk some of these myths, with the intent of helping you sell your home faster for the right price.
Myth 1: The person with the highest priced analysis can actually obtain that price for you
Obviously it is the pool of buyers who determine the desirability of the property, and price influences desirability.
The higher the price, the more work it is to sell the value proposition of any particular property. Choosing an agent based on price is likely not the best method of choosing a trusted partner who should represent your interests.
Myth 2: A low price generates multiple offers and ultimately a fair sale price
Myth 3: Every property eventually sells
As a REALTOR®, one fallacy I encounter again and again is that “my property must eventually sell.” This is just not true.What home sellers must keep in mind is that even the official real estate board statistics that measure average days on market only count the properties that actually sold. The statistics omit any properties that didn’t sell or were withdrawn from the market.
In Reality, It Could Take Years for an Overpriced Property to Finally Sell
In addition, during these years, there could be many listing contracts which expire.In this case, the only data the real estate board reports on is the duration from the contract that did sell. None of the expired listings from the past are included in this figure.The takeaway? The “average days on market” figure is actually much longer than publicized, and a price above market value does not equal money in the bank if only you wait long enough.
Myth 4: You can rely on a market evaluation to determine the value of your home
The simple fact is a market evaluation is a guide, but is not an objective determination of value.As I’ve shown above, market evaluations can vary.
It’s important that you critically review and if possible participate with your agent in determining the market value of your home.
Since housing markets shift and change, it is also important to know which direction your market is headed. A local market trend can change the asking price strategy regardless of what the comparable past sales are showing.
With this knowledge you can identify if it’s a good time to list and stand firm at a high price, knowing the market is likely to move to meet you.
Alternately, it may be wiser to list in order to sell quickly, knowing the market is softening and now is the best time to realize the highest price you are likely to see in the next few years.
Once your property is on market, be prepared to make adjustments to your home evaluation based on feedback from your showing and activity levels of the market.Again, it is the market that dictates value, and the best way to monitor the market is to note the actual activity on your listing.
Part 4: Know and Understand Your Competition
When selling a home, it’s essential to view competing listings in your neighbourhood if you are unsure of the price or the validity of “comparable” properties used in the evaluation.
At any given time, there is a pool of buyers vying for the best properties on market and hoping for the best price. Each buyer comes with a unique set of needs, but it is unlikely that any one home will meet all of those needs.
Indeed, some homes are more unique than others, and may require more time to attract the right fit in terms of a buyer.
Other homes you will be competing against may match a number of needs and therefore have crossover to attract a greater number of buyers.
Assuming they are priced to meet the needs of the market, homes with “crossover appeal” will sell faster.
So, it’s important to understand why some homes sell and why others do not when evaluating your home and setting a sale price.
Beware Under-pricing Your Property
Two virtually identical homes may be priced significantly differently. However, the lower-priced of the two may not sell more quickly. Why is this?
This is because buyers are generally savvy, and buyers usually have real estate professionals assisting them. As a result the homes that actually sell tend to sell within a more predictable and reasonable “narrow” range.
Again, having a home that is priced too low may raise unwarranted suspicions abut the home or may attract low-ball offers, despite the fact there’s nothing wrong with them! Some homes that don’t sell will be overpriced and will sit on market for an extended period.
Yet other homes will be under-priced and sell very quickly, showing up only very briefly on the radar before moving to the “sold” category.
Always Include Sold Properties in Your Market Analysis
It’s important to always consider sold properties when setting your asking price. While considering active listings (what houses are on the market now) is useful, looking at the range of values for houses that have actually sold is more realistic and deserves attention when setting your asking price.
With active listings, pricing evaluations and seller motivations can vary widely. As a result, the asking prices of similar properties often have a wide scope. Looking at what properties actually sold is a better way to zero in on price.
Use Expired Listings to Shape Your Market Analysis
Always look at the listing history of the properties you are comparing when conducting your market analysis.Valuable questions to ask when investigating other comparable homes on the market include:
- How long have they been on market?
- Were they listed before, and if so for how much?
- Have they worked with the same agent for the whole time or have they tried various partners and marketing strategies?
- Did the owner eventually sell or are they still a current listing on the market?
- Did they never sell and did the seller give up?
My Approach to Market Evaluation
Even after dutifully going through all the steps of due diligence and market analysis, for many home sellers hope springs eternal!
Many sellers hear what they want to hear (that their home can be sold for a higher price) and set their price based on a flawed or inflated evaluation of their home.
Certainly from time to time homes sell for more than one would reasonably expect based on comparable properties.
More often, overpriced homes sit on the market for an extended period and eventually become stale, ultimately selling for less than they could have had they listed initially for a price which would have drawn more attention at a time when the listing was fresh and a pool of buyers was ready to view it.
Using a Scattergraph Approach to Identify the Right Price for Your Home
I like to look at listings and sales using a “scattergraph” approach that clearly shows the outliers: the homes which sold for a premium and those which sold at “fire sale” prices.
Most homes sell in the middle, as a scattergraph clearly shows.
Trying to sell your home for a premium (an obvious outlier on our scattergraph of prices) is like trying to win the lottery. It could happen, but a lot of time and money will be spent waiting for something to happen which may never come to be.
Market Evaluation: a Science and an Art
Ultimately, market evaluation is a science and an art.The science of market evaluation comes from gathering and processing data.
The art of evaluating the correct value of your home comes from incorporating:
- Knowledge of the local market
- Instinct and timing
- Knowledge of which data to utilize and which data to throw out.
A key part of the art of market evaluation must include taking into account the individual needs of my clients (that’s you!) so that the relationship between price and market timing is fully understood, communicated, and acted upon.
Comparing Properties: Looking for Similarities and Contrasts
I take a broader approach to the definition of comparable properties. I not only look for properties that can be compared based on their description and attributes, I also look at the range of selling prices for homes in the area and compare the recent sales.
By analyzing the contrasts between properties in addition to the similarities, as your Realtor I will have a better sense of where the property fits within a range of prices.
Example Market Analysis
Let’s say we’re looking at your 3-bedroom, 2-bathroom, 1500 square foot home in a residential neighbourhood in East Saanich. Your house sits on a standard size lot, and is in average condition.
Not only can I look at other sales of similar homes in your area, I can also examine a list of all sales in the neighbourhood and sort those sales by price. Next, I run through the list, comparing and contrasting each similar home with your own.
The result of this market analysis?
Most likely the lower-priced homes on the list will be smaller homes or will be in poor condition. Most likely, the higher-priced homes on the list will be larger, with more updates, and will be in desirable locations.
By comparing your home with the properties on this list I can get a good idea of where in the list your property fits in. I can then be confident that my home evaluation provide you with an accurate price for your home.
Contact Andrew Plank for More Information
If you’re considering selling, a great place to start is with my free Home Evaluation Tool.
Most importantly, if you have any questions about the market, our services, buying, or selling, please contact me and I will be pleased to answer all your questions!
Victoria Real Estate Market Resources (External Links)
Comparative Market Analysis (definition)
