How Real Estate Agents Price Homes

One of the biggest jobs of a real estate agent is to help sellers price their homes. Sellers don't often have the knowledge or experience needed to price their homes so it will attract buyers. That's where a licensed real estate agent can be a big help. 

If you are looking for guidance on how to price a home for a client (or yourself), look no further: this post will provide the basic principles for pricing that is fair to both seller and buyer.

Begin With the Home's Features

The first thing to do when listing a new home is to list its features.

  • How many bedrooms?

  • How many bathrooms?

  • What is the square footage?

  • What year was it built?

  • Does it have extras like:

    • A finished basement?

    • A pool?

    • A closed garage?

    • Anything else?

Once you have that list, you can begin performing a comparative market analysis.

Comparative Market Analysis

Comparative market analysis is a technique that uses the sale price of similar homes in the same area. By finding similar homes and adding or subtracting for extra or missing features, you get a price that's likely to reflect the real value of the home at the time of selling.

In comparative market analysis, we have the subject property — the home currently being priced — and comparative properties — similar homes that were sold in the same area. To compare them, you build a table with all the features for each home, along with their sale price. 

In our example, we have one home to sell that was built in 2005, has three bedrooms and two bathrooms, is 1,700 square feet, and has a pool. Our comparison homes are 1700 or 1800 square feet, have three or four bedrooms, two or three bathrooms, and were built between 2004 and 2010. Only one of them has a pool.

Using the home called Comp 3, which is the closest in age and size to our subject property, we can establish a baseline for the price: $340,000. However, the lack of a pool for Comp 3 means we'll have to increase the price to compensate.

We now see that Comp 2, a similar home with a pool, sold for $374,000. So our subject property sale price should be somewhere above $340,000, but not much more expensive than $375,000. 

How much would you price the home using this technique? 

Pricing Tips and Tricks

The comparative approach requires a seller to do some research about properties in their area. That's where a qualified real estate agent can make a big difference. But it's not the only thing to consider when pricing a home.

  • Pricing high or low? A common concern among home sellers is whether to price on the low end or the high end of the scale. Most professional advice says to price lower. This is because a lower price will attract more potential buyers, and if the market is hot, offers are likely to go above the asking price.

  • Be flexible. Market conditions can change quickly, which can affect your home's price. Do not consider your sale price set in stone. Instead, be ready to make it a conversation between you, your agent, and potential buyers.

  • Consider the appraisers. A potential buyer is within their rights to have the property evaluated before buying. So aside from square footage and number of bedrooms, the condition of the home can make a big difference. Roofing, foundation, windows, yard, plumbing, and other elements will feature heavily in an appraiser's evaluation.

  • Don't wait for the perfect buyer. In many areas of life, perfection is the enemy of the good. Refusing offers because the buyer isn't perfect, or not giving you the high price you really want, is a great way to ensure your home will be on the market for a long time.

To learn more about how pricing works, consider enrolling in our pre licensing courses! Aceable Real Estate School 

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