Every homeowner wonders, "What is my home worth?" During the housing bubble years leading up to 2007, it was with the pleasant thrill of imagining money piling up in the bank; after the crash, it was with a sense of dread, remembering that looming mortgage debt. These days, who knows?
That's why coming up with a real answer to this question is important if you want to sell your home -- and pinpoint the right asking price. If not? It's kind of fascinating to see how much your investment may have appreciated over the years. But how do you find this magic number? Here are some ways to figure it out.
Get an online home value estimate
One good starting point is to enter your address on realtor.com, which will instantly price your home based on data such as its square footage and recent home sales in the area. But while this will help you get a ballpark idea, remember that there's no substitute for the expertise of a Realtor, who has access to a vast database of information to help you home in on that number.
Tap a real estate agent's expertise
Real estate agents specialize in answering the question "how much is my home worth?" for their clients, which they do by running a comparative market analysis. This process involves finding similar properties ("comps") that sold within the past 90 days.
The most accurate comp is a home that's nearby, similar to yours in square footage, and has the same number of bedrooms and bathrooms. (Ideally, the lot size is also equivalent, but that's more important in rural areas, where homes are set on multiple acres.) Once your agent finds a few recently sold comps, then she averages the purchase prices and uses that figure as a baseline for how much your home is worth.
Size up the competition
From there, your agent will size up the current competition.
"You should always look at what other properties are listed for in your community," says Chris Dossman, a real estate agent with Century 21 Scheetz in Indianapolis. For instance, "if your neighbor's home is listed for $400,000 and you want to list yours at $500,000, you'd better be able to clearly explain the price difference to prospective buyers." Or else adjust your price accordingly.
Consider how buyers shop
Sellers need to consider how home buyers search for properties online. Let's assume your home's fair market value is $503,000.Yet Dossman points out that many people search for homes on the web using $20,000 or $25,000 increments. The upshot? Listing your home for $503,000 could prevent your listing from being seen by buyers who are searching for homes in the $475,000 to $500,000 bracket, so knocking off $3,000 for an asking price of $500,000 might generate more traffic -- and maybe even a bidding war to push that price above your expectations.
Also, avoid listing your home at an odd dollar figure (e.g., $999,000 instead of $1 million). While retailers and as-seen-on-TV purveyors of the Miracle Mop effectively price products ending in $0.95 or $0.99, Dossman says the same approach doesn't apply to real estate: "It's hard to justify awkward pricing. It's just confusing to buyers."
Try to remain objective
"Sellers always think that their home is worth more than it is, because of their personal attachment," says Dossman. Indeed, it's hard to boil down years or decades of memories in a home to a number. It's also hard to accept that your home is worth less than what you paid for it, or that you can't just tack on the price of the renovations you've made. On average, renovations will reap you only a 64% return on investment, although that varies based on the type of upgrades you've made.
Why it's important to price your home right
Price your home too high, and it could wind up sitting on the market. That's a big problem, because a property that goes unsold for an extended period of time (e.g., more than 30 days) often becomes stigmatized.
"Buyers get suspicious when they see a house that's been on the market for a while," says Dossman. "They think that something is wrong with the home." If that's the case, the seller may have to make a significant price reduction -- sometimes dropping the price below market value -- in order to nab a buyer.
Pricing your home below market value in an attempt to stir interest and generate multiple bids can also backfire. Granted, the strategy that could work in a hot seller's market, but underpricing your home frequently leads buyers to assume that your home is worth only its list price, says Dossman.
Your best bet: List your home close to what it's really worth -- aka its market value. When in doubt, turn to your real estate agent to help you cut through the haze and help you pinpoint the right price.
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