Reader question: “We are planning to sell our house in Spring 2012. We are in a fairly slow real estate market, so we really need to get the pricing side of things right. I don’t want to be one of those homeowners who are on the market for six months or more. We are serious about selling fast. My question is, how do I find the fair market value of my home (for pricing purposes)? Any advice would be much appreciated.”
Whether you realize it or not, you are the textbook definition of a “motivated seller.” You want to sell quickly, and you realize that pricing your home effectively is the best way to accomplish this goal. This will serve you well as you try to sell your house.
You’re absolutely right. Finding the fair market value of your home is the best place to start. All of the other details will fall into place, once you determine a realistic asking price. So let’s talk about how to do that.
The one thing you didn’t say is whether or not you’ll be using a real estate agent to help you sell the house. This one of the key responsibilities of a listing agent. Your agent should be able to help you answer this key question: What is the fair market value of my house? We will talk more about the agent’s role in a moment.
There are several ways to determine the market value of your home. All of these techniques have certain pros and cons associated with them. So I recommend using several of them in conjunction with each other. This is the most well-rounded approach. Here are some of the ways you could come up with an asking price.
Using Zillow to Find Market Values
Zillow.com is a multi-faceted real estate website that started out as a tool for finding home values. They have since grown beyond their original focus (property value estimates), but they still offer that feature. Homeowners often use this website to find the fair market value of their home. But it’s not necessarily the best approach.
In my opinion, there’s a right way and a wrong way to use Zillow to find the market value of your home. You could just enter your address and get a “Zestimate” from the website — basically, the computerized version of an educated guess. Or you could review recently sold homes in your area, and determine your house value based on those sales.
This is what a listing agent would do for you. They call it the comparative market analysis, or CMA, to make it sound all high-falutin’. But the CMA is built around recent sales data. The agent will pull sales data from a variety of sources, and then adjust for any unique features your home has (or lacks). But the insight still comes from recently sold homes in your area. It’s not rocket science.
Other Websites With Recently Sold Homes
You don’t have to limit your research to the Zillow website. There are dozens of sites with data pertaining to recently sold homes. You can also use Trulia.com, Realtor.com and others. The process here is the same. You should make a list of similar homes that have sold recently in your area, and then look for pricing trends. This will show you what buyers are willing to pay for similar properties, in the current real estate market. This is what real estate agents mean when they refer to comparable sales, or “comps.”
Notice the words I’m repeating here — “similar,” “recent” and “in your area.” These are the three key ingredients of a good comp. You want to focus on similar homes that have sold recently in the same neighborhood, or the same part of town. This is one of the best ways to find the fair market value of your home.
You can also see list prices on these websites. Just keep in mind there’s a big difference between the list price and the sale price. Homeowners frequently set their asking prices above the fair market value for their homes. They might do this for any number of reasons. Usually, it’s because (A) they need a certain amount to pay off their loan, or (B) they have based the asking price on the amount they originally paid for the property. Unfortunately, neither of these factors has anything to do with the actual market value of the home.
The list price pertains to homes that are currently listed for sale. The sale price shows what the home actually sold for, so it’s a better indicator of fair market value for a particular house.
I’m not telling you to completely ignore the listing prices. On the contrary, they can be quite helpful. They offer some insight into your competition. For instance, if you end up pricing your house below most of the comps in the area (based on what you feel is the fair market value of your home), you could use this as leverage with potential buyers. You could tell them that your price is more than fair, given what other sellers are asking for in the neighborhood. And they’ll know this is true, because their agents will be showing them the same data!
Hiring a Professional Home Appraiser
Having the home professionally appraised is arguably the best way to find the fair market value. I say “arguably” because it really depends on the skill of the appraiser and the accuracy of his findings. These things vary, based on who you hire to appraise the home.
For example, some appraisers consider all distressed properties in the area when doing their research. This includes bank-owned homes and other foreclosure sales. This will drag down the value of your home, since these properties are often sold below fair market value. Other appraisers focus mostly on “normal” / non-distressed sales, giving less weight to the foreclosures. This technique would likely result in a higher appraisal amount.
You can expect to pay $300 – $400 for a professional home appraisal. Whether you need one or not is a question only you can answer. Here’s how I would decide…
I would start by researching recent sales online, by using the websites mentioned above. If there was plenty of sales activity in my area, I should have an easy time gathering some comps. This would make it fairly easy for me to find the fair market value of my home. I would then compare my house to those that had sold recently, make adjustments for any unique features that my home lacked or possessed, and set my asking price accordingly.
If I’m not comfortable gathering this kind of data (or if there aren’t very many recent sales in my area), I might want to hire an appraiser. If I price the home too high, it might stay on the market for a l-o-n-g time. That’s the last thing I want. So I could have the home professionally appraised to determine the fair market value. This would likely lead to more offers from buyers — and a quicker sale. Of course, home staging is still in order. But that’s another article entirely.
You could also work with a real estate agent to determine your asking price. And that’s what we will talk about next.
Ask an Agent: What is the Fair Market Value of My Home?
If this is your first time selling a home, I strongly recommend that you use a listing agent. It’s a tough real estate market for sellers. In most parts of the country, the supply-and-demand balance is skewed in the buyer’s favor. There is plenty of inventory, but not enough qualified buyers to absorb it all. This makes it harder to sell a house. It also makes it that much more important to find the fair market value of your house, before you list it for sale.
Choose an agent who specializes in sales, as opposed to helping buyers. Try to find an experienced agent who has been selling homes for at least a few years. And remember, you are not obligated to work with the first agent you speak to. So don’t sign a listing agreement until you are fully satisfied you’ve found the right agent for you.
Chances are, the agent will want to visit your home to give a “listing presentation.” This is where they explain their selling philosophy and the steps they plan to take along the away. Most agents will also use this opportunity to show you some comparable sales in the area.
During this initial visit, I recommend that you come right out and ask: “How do we find the fair market value of my home?” Your agent should talk about comparable sales, price adjustments for the unique features of your home, and other concepts discussed in this article. If you get a blank stare — or if the agent doesn’t seem to have a logical method for determining the fair market value of your house — you should find a different agent.
Again, if it’s your first time selling a home, you’re probably better off with professional help. You want to list your home on the MLS. You want to put it on Realtor.com, Trulia.com and other high-visibility websites. You want to review comparable sales to determine a realistic asking price. An experienced agent can help you with all of these things and more.
If You Only Remember One Thing from This Article…
If you only absorb one lesson from all of this, make it this one. The best way to find the value of your home in the current real estate market is to review recent sales in the area. This shows you what buyers are willing to pay for certain types of properties. It takes all of the mystery away. It doesn’t matter how much you paid for your home when you first bought it. It doesn’t matter how much you owe on your mortgage, or what you need to “get out of the deal.” The market will bear what the market will bear. And it’s your job, as a seller, to find out what the market will bear.
Use the websites mentioned earlier. Get a professional appraisal. Hire a real estate agent. Use at least two of these methods to set your asking price. Overpricing your home is a recipe for failure. Price it right from the start, and you will dramatically increase your chances of a quick sale.
This article explains how to determine the fair market value of your home, before listing it for sale. If you would like to learn more about this subject, you can use the search tool at the top of this website.
Brandon Cornett is a veteran real estate market analyst, reporter, and creator of the Home Buying Institute. He has been covering the U.S. real estate market for more than 15 years. About the author