Set an Asking Price When Selling a Home
For years now, it’s been a very good time to sell a home in Seattle. Maybe you’re thinking about taking some money off the table. A gain isn’t a gain until you sell. With Seattle’s historic run as the hottest market in the country, now is a good time to realize a significant gain. This blog post will give you some of the tools you can use to set an asking price for your home if you are planning on selling it.
Understand the Agent’s Comparative Market Analysis
The easiest thing to do, by far, is ask a realtor for a Comparative Market Analysis (or CMA). It is, after all, what they do for a living, and agents have access to automated tools that make the task even easier.
But like they say in politics, “Follow the money.” A broker provides you with this service for one reason and one reason only: To get the listing. She is hoping that you’ll choose her to list and sell your home.
So she has a strong incentive to give you some very good news. And of course there is no better news than hearing that your home is worth more than you imagined!
Once you sign the listing contract, you’re stuck with that agent. Don’t kid yourself, those listing contracts are iron-clad (written by and for real estate brokers, of course, not the sellers). If you took the bait and priced the home too high, you’ll have to drop the price until you find a buyer. No fun at all.
Ultimately, this is your home. Your next egg. So you should do the work to know for yourself that you've done a good job in setting the asking price price. And besides, you can save tens of thousands of dollars when you skip a traditional broker in the first place.
Start - but don’t finish! - with Automated Valuations
The biggest real estate site today is, by far, Zillow. It launched based on the appeal of its new-fangled “Zestimate,” a computer-generated opinion of every home’s value. Like a rocket, Zillow viewership took off and never looked back. (I wish I could say “I was there,” but I wasn’t….)
There have been lots and lots of criticisms over the years about the accuracy of the Zestimate. Heck, Zillow even did a poor job with estimating the value of its CEO’s home.
But these days only a fool ignores Big Data entirely. So take note of the Zestimate. Also take note of Redfin’s automated value estimate - unlike Zillow, tied directly to local MLS data. Those two represent the biggest players in the auto-valuation realm, but there are other automated online tools as well.
Use Comps to Determine Fair Market Value
Fair Market Value (or FMV) is an estimate of what a reasonable buyer will pay for the home. Remember that it is just that, an estimate, and there is no “right answer.”
FMV is determined by comparable properties, or “comps.” Ideally, a comp is as close as possible to the home being sold in terms of style, age, size, location, view, condition, etc. - really in every way. The perfect comp would be the identical house in identical condition next door.
Needless to say, though, the “perfect comp” almost never exists. So we look for properties that are at least somewhat similar and within the same area or neighborhood. The more similar the comp, the more likely the comp reflects the subject’s likely value.
For a seller, FMV should be forward-looking. It should be at the high end of today’s value, and in the middle of tomorrow’s. So a seller needs to look at two types of comps: (1) those recently sold (“sold comps”), generally within the last six months; and (2) those that are currently on the market (“active comps”).
Finally, to ensure a fair comparison, a comp is reduced to a dollar per square foot value. This value can then be applied to the subject property’s square footage, for a reasonable estimate of FMV.
Redfin Has the Easiest Tool for Finding Comps
It’s likely any search engine of market data will work. Redfin, however, has a “Map Nearby Homes for Sale” button that is the easiest. Simply enter the address of your subject property, then hit that button. Scroll out far enough to get enough results.
From there, adjust your search criteria. Get as close as possible to the subject on the number of bedrooms, bathrooms, and square footage. Match as much as possible both the style and the condition of the subject.
Using the “More Filters” pull down, limit the results to “sold” for sold comps and “for sale” for active comps. The goal should be 3-5 good comps of each type. Remember to select your comps from the same neighborhood (the three rules of real estate are location, location and location).
Crunch the Numbers
A spreadsheet is helpful at this point, at a minimum you’ll need a calculator. First, calculate the dollars per finished square foot of each comp. If you can, also calculate the dollars per total square foot. “Total square feet” includes both finished and unfinished space (but not the garage). Calculate the average values for both your sold and active comps.
Now multiply these values by your own square feet. If you don’t know the size of your house, use the county records (click Property Report, then Property Detail - “AGLA” stands for Adjusted Gross Living Area, a term used by appraisers). Take into account the high or low values too, particularly if either of those are better comps (for example, based on condition).
You’ll end up with an estimate of value for your home (sold comps) as well as the value of your competition currently for sale (active comps). Now it’s time to set your asking price.
Apply the “Blush Test”
Look at everything, both the automated valuations you’ve found as well as your own CMA (yeah, you did it!). Pick a number at the high end of what you think is fair value for the house, and at the mid range of what else is on the market.
Now stand in front of a mirror. Say that number out loud. Say “My home is for sale for $_____.” Did you blush? Maybe giggle? If not, congratulations! In this market, that’s a good asking price. If you blushed or giggled, then you need practice saying that number out loud a few more times, or maybe drop it just a little. Repeat until you are blush- and giggle-free. Congrats! You just set a great asking price for your home.
Or Hang the Meat Low Enough to Make the Dogs Want to Jump
There is another option. In this crazy market, there are more buyers than houses for sale. So a house priced at the low end of fair market value is likely to result in multiple offers. And those offers will likely include escalation clauses. Meaning that a “bidding war” will result.
Needless to say, sellers love bidding wars (more tastefully known as “multiple offer situations”). Conventional wisdom says that a bidding war will drive the price up to the absolute highest value possible.
If that is your goal, then don’t apply the Blush Test. You don’t want a maybe-scary high price. Instead, find a number at the other end of the price spectrum. Find a value that is obviously “a deal.” Set an “offers considered on” date. Host a couple of open houses. If you price it right, you’ll then sit back and watch the fireworks.
Either Way, Price It "Just Below"
There is good evidence supporting the old saw that your asking price should be "just below." That means that the thousands digit should be a 4 or a 9. For example, if you think the house is worth $515k, consider $519k instead as your asking price.
Good Luck in Your Sale!
But you don’t need it. It’s an historic Seller’s Market here in Seattle. And you certainly don’t need to offer a “selling office commission” to a buyer’s agent to “find” a buyer. Don’t worry, they’ll find you.