Mark Wozniak: One of the most important aspects of marketing your home is to set the correct market price in the first place. Often we hear a lot of myths about what really determines the market value of my home. What are some of the more common ones that you’ve heard, Leigh Anne?
Leigh Anne Monk: A couple of myths that I’ve heard, Mark, are things like what they paid for the house. They think that whatever amount they paid for the house helps determine their market price. That’s just not true. They may look at what I need to have. They may need a certain amount of money to buy their next house and again as much as we’d like to be able to give them what they need or even what they want, those things do not determine market value. That is just the reality. Another myth that sometimes gets into the play of what determines market value is how much money they put into the house. They may have over the years added new carpet and paint. Sometimes they’ve done major improvement and that can in fact help determine market value.
Mark Wozniak: Like a deck or a swimming pool…
Leigh Anne Monk: A covered patio all those types of things that can be very helpful in determining market value, but honestly things like new paint and carpet really just helps the house keep up with market trends.
Mark Wozniak: Yeah even a kitchen remodel sometimes is just keeping up with what everyone else is doing.
Leigh Anne Monk: Right, which is unfortunate because you spend a lot of money into that but sometimes it just does that. Another myth that we hear sometimes is what your neighbor got - especially the neighbor that had the house priced at “x” dollars a year ago. Reality of it is - what your neighbor got for their house especially within a year, a year old, really is old data and they really need to look at what the current market value is based on current analysis.
Mark Wozniak: Right, and frankly even your neighbor’s home is different than your home so there’s a reason that home got what it did.
Leigh Anne Monk: Exactly. That’s right. And we do a comparison and we will talk about that in a minute. A couple other myths are what another agent may say. Another agent may come in and say, "Hey I can get you 'x' dollars for your home," and even though that number may tickle your ear and you go, "Wow! I love that price!" the reality of it is, we as real estate agents do not determine the market value of houses; the market does. Finally, there’s something called the county assessment which is actually by the county and is more of a mathematical algorithm type of situation to determine the tax value for the home, how much the house is assessed for. That really has nothing to do with the value of the home and what someone is willing to pay for it. And again there are some wonderful websites out there that also, that claim to help you determine it. But things like Zillow for example can have some really, really good data. At other times they do use some mathematical concepts that determine the value, but they don’t understand your neighborhood. They don’t understand what’s happened in the subdivision over the years.
Mark Wozniak: Yeah it’s taking a real broad brush approach and trying to apply it to an individual home which you really can’t do because your home really is unique.
Leigh Anne Monk: And honestly I had one that was 100K over in Zillow one time and I had to convince the client that this was not reality as much as I would love to get you 100K above, here is what the market value is.
Mark Wozniak: Right, so it just goes to show that there are a lot of things that don’t determine the value. But what are some of things that do, in fact, determine the value?
Leigh Anne Monk: Sure. You know the primary thing which makes sense when people think about it is what the buyer is willing to pay for your home. Is there an able and willing buyer, someone that’s qualified and someone that is willing to write you a contract and go through on that commitment and go to settlement and willing to pay for the home? And then, of course, what are you willing to accept as the seller? You have to have a meeting of the minds so to speak - what the buyer is willing to offer and pay you, what you’re willing to accept and then the third factor that truly does determine value, Mark, is what the appraiser determines is the home value. The appraiser comes in after the contract is signed to help the bank determine that the loan amount that they need to offer for this buyer to actually buy this home is an adequate - I don’t think adequate is the better word - an accurate assessment of what the house is worth.
Mark Wozniak: So if a buyer and seller agree to a price but the appraiser does not agree to that price - the appraiser thinks it’s a lower - that can impact the buyer’s ability to purchase the home because they will not be able to get a loan against that home and so that absolutely helps determine the market value.
Leigh Anne Monk: Exactly.
Mark Wozniak: Yeah so the appraisal we just talked about that comes after a purchase offer has been made on the home and you’re kind of in that contract process with the buyer but you, of course, want to know what to price your home before it goes on the market and to do that you would work with your Realtor® to assess a comparative market analysis that the Realtor® will help put together for you. And what that does is, it takes a look at the marketplace much as the same way an appraiser would. We try to get a very accurate reflection in the same way that a non-interested third-party appraiser will look at your home. So what are some of the things that go into that? That CMA is what we call it.
Leigh Anne Monk: Sure. Right the CMA. The first thing that comes into factor is what homes have sold at a similar - in terms of bedroom, bathroom and some of the features within your subdivision or as close as possible within a specific timeframe. The actual sold homes - not the ones under contract, not the ones that are active although those have important factors to play in the overall CMA. The most important thing we look at first are the sold homes because that’s what the appraiser looks at.
The appraiser doesn’t really care that the house down the street is offered for “x” dollars more or less than yours. He cares about what has sold because that has said that a buyer and seller have agreed and an appraiser has agreed that that is the right price. So they take those three or four homes that they select from the sold inventory so to speak and they actually bracket them which simply means they take a house below the market value and slightly above the market value and they add and subtract dollars to your home based on the equal feature function comparisons.
Mark Wozniak: Right, so what we don’t do is just take the cream of the crop that sold because an appraiser won’t either. Again we’re trying to give a very honest, accurate, realistic view of what your home could sell for. Now once we’ve helped work with you to pinpoint that price there are some pricing strategies that can be utilized. One that I often hear though is the seller say, "Well I understand my home is probably worth this much but let’s try to price it up here to give some room for negotiation," or "Look, we just know a buyer’s going to come in and offer us less so I want to give myself that buffer." How do you react to that type of proposed strategy by the homeowners?
Leigh Anne Monk: Well, we usually recommend against that. Here is why: There are really two reasons, one is when you price your house above its market value what you are doing in effect is helping the competitors, the competitive houses on the market sell better. Because say you price your house at twenty five thousand dollars more than its market value, those houses that are priced appropriately at that price range may have some nicer functions, some nicer features, more square footage things like that and all of a sudden your house is going to look the worst compared to all the other houses in that price range and before you know it you’re helping someone else sell their house. That’s number one.
Number two is when a house is priced too high it stays on the market longer because everyone wants a deal, right? Everyone wants a deal so they’re going to look at houses that give them the most value for the money. So what happens is when a house stays on the market a long time it gets what we kind of call "stale" and buyers begin to wonder what’s wrong with the house. "Why has no one else bought this house?" "Why has it been on the market for 30, 60, 90 days if the average days on market at that time are slightly smaller than that?"
Mark Wozniak: Yeah it almost becomes a red flag that says, "Stay away from this home because there is something wrong with it!" Or conversely, "If there is something really wrong with this home, I am going to really low-ball it." So the strategy can completely backfire.
Now there are some strategies that can be effective which is if your home, if we feel the appropriate value is just beyond kind of a major breakpoint in dollars that buyers might search on - for example, if your home is worth five hundred and five thousand but we know that a lot of buyers stop their search at five hundred thousand it might make sense to lower your home's price to that next search bracket so that you can get a lot more people looking at your home. So that’s something that you can work with your Realtor® to figure out, you know, what are the search breakpoints, where it might make more sense to price my home rather than just a little bit above it.
So now that we would have worked to help determine the appropriate market value of your home, it would be time to document that in what is known as a listing agreement and in another segment we are going to talk about the purpose and the different terms that go into that listing agreement that you would enter into with your Realtor®.