Pricing your house

It is important to know the market value of your house. Obviously you want to get maximum value on the sale, but don’t get distracted by the final selling price. Instead, it is much better to concentrate on contract terms, costs from the home inspection, and loan closing cost fees.

For Sale By Owner (FSBO) houses don’t sell if the asking price is too high. If you are trying to get the market value + 20%, you’re going to wait a long time for any offers to come in. Even if you get offers, your troubles aren’t over. Most likely, the bank won’t put a loan through for the buyer of an overpriced house.

The benefit of FSBO is that you can keep the commission that a realtor would have taken. Don’t get greedy by trying to increase the final sale price way above market value.

This page contains a way to get a fair estimate of your house’s market value. If you want higher confidence in knowing the market value it is suggested you try some of the links on the left of this article. They will link you to professional price calculators and give you contact numbers to professional appraisers. That said, here are some tips in finding the value of your house:

1. How to find market value

   The number one source in finding the market value of your house is looking at recent sales of similar houses. These sales are referred to as comparables. The comparable houses must be similarly sized, geographically close, and recently sold. It is suggested you find between 2 and 5 comparable sales. When figuring out market value do not put any faith in the "assessed vale" your city assessors office provides - even if you know how to convert the millage rate in.

2. Finding Comparables

   If you can find your city assessor’s office web page they may list recent sales. This is a great resource as it will tell you square footage, lot size, and amenities. You can also check local listings on web pages and in the newspaper, though be aware that asking prices are often much different than sale prices. If neither of these work you may have to find a professional appraiser. An appraisal of the house will cost around $400, but will give you a very accurate market value.

   If $400 sounds a bit steep many times you can purchase the appraisals of 4 or 5 comparable sales instead of an actual appraisal. Appraisers typically charge around $50 for this service, but you can have faith that the sales they choose will be very similar and have a good amount of data.

   There are also web pages which will give you an estimated market value (linked on the left of this web page).

   When looking at the comparable sales the most important number is house square footage. All comparables must list the number of finished and unfinished square feet.

3. Calculating the price

   To calculate the price you should make a chart with each comparable sale, and identify the differences between those houses and the house you are trying to sell.

   Each difference you find should be given an estimated value difference. It can seem difficult to judge these values, but as a rule of thumb estimate how much it would cost to have someone build the feature and divide that cost by 2. For instance, if your house doesn't have a fireplace, but the comparable does you could call up a local company which sells fireplaces and ask how much it would cost to buy and install one. If they say $2500 then assume your comparable's fireplace added on about $1250. If the comparable has bay windows and you only have sliding windows then you would take the cost to install bay windows and subtract the cost to install sliding windows. For instance, if it costs $5000 for bay windows and $3500 for sliding windows then the bay window construction cost is $1500 extra which adds about $750 of value to the house ($1500/2).

   After you have calculated in all of the known differences you should estimate a price per square foot for each comparable. Unfinished square footage typically counts 1/3 of a finished square foot. With 3 or 4 comparables you will hopefully find a very close range in price per square foot which you can use to estimate the value of your house.

   Example:

   Let’s say your house has: 1750 finished sq feet, 0 unfinished sq feet, 3 bedrooms, 2 bathrooms, a fenced in yard, a shed, and central air.

   The comparable you find has: 1,400 finished square feet, 700 unfinished square feet, 3 bedrooms, 1 bathroom, no fence around the yard, and a large deck. The comparable sold for $184,000 3 months ago.

   To find the comparable price per square foot we will take the $184,000 and add or subtract each item that is different from our own house. The list will look like: 1 less bathroom = -$3,500, no fence around the yard -$1,500, no shed -$750, a large deck +$1000. This changes the comparable price to $184,000 - $3,500 - $1,500 - $750 + $1,000 = $179,250.

   The comparable has 1,400 finished square feet. Using our formula of each unfinished square foot equaling 1/3 of a square foot this means 1,400 + (1/3 * 700) = 1633 square feet. Our comparable’s final price per square foot is then $179,250 / 1633 = $109.8/sq foot

   We can then take $109.8/sq foot and multiply it by our house square footage and get: $109.8 * 1750sq feet = $192,150

   In practice we would want multiple comparables so we would have a range (though hopefully a small range) of prices per square feet. Assuming you can find the comparables and make a rough estimate of the amenity differences, you will be surprised as to how closely ranged the price per square foot is—and your confidence in setting your own price.

4. Asking Price

   After you have come up with your house’s market value it is standard to add about 5% on and list it. Unless you get multiple competing offers your final sale price will probably be negotiated below the asking price. Usually you should list at a price slightly below a whole number - such as $174,500 instead of $175,000. It is often common for the buyer to request the seller pay the loan closing costs (which are usually about 2% of a loan). This is a logical thing to do as the buyer is probably scraping everything together he or she has for the down payment. As a seller it is worth trying to negotiate those closing costs into the final sale price. If the buyer offers you $170,000 minus $3,000 to cover closing costs a good counter is to say "I will accept $170,000, but any closing costs you want covered up front have to be added on to the final sale price" so the new deal would be $173,000 minus $3,000 in closing costs.