A home’s market value can seem like an elusive number – especially to sellers who are attached to their homes and to buyers who are attached to their money. “Sellers are selling memories, and buyers are buying fantasies,” explains Diane Saatchi, an associate broker at Saunders & Associates. “When people price their own houses they tend to overvalue, and when they estimate the house they want to buy, they undervalue.”
But there’s no room for guesswork – or wishful thinking -- in the housing market. “When a deal is struck and a purchaser applies for a mortgage, the bank sends an appraiser who uses specific dollar amounts for things like countertops and in-ground pools,” Saatchi says. Note that the amount the seller needs is not on the list: That may be a factor in deciding whether or not to sell, but it has no bearing on the home’s market value.
It’s best to get an objective opinion before pricing a home or making an offer on one. Brokers don’t use a strict mathematical formula like bank appraisers, but they do weigh a handful of factors that are good predictors of what a home will sell for – and the broker’s estimate tends to be very similar to the appraiser’s number. Here’s how the pros eyeball it:
1. Location, location, location
It’s a cliché for a reason. Pretty staging might attract buyers, but it won’t make a dramatic difference in price if the locality is less than ideal. “You want to think like a buyer and realize that the things that help a house sell quickly -- like being well-furnished and clean and presented in a very nice way -- they attract buyers, but people are not going to overpay for furniture they’re not getting,” says Saatchi. And there’s only so much of a discount a buyer can expect on a home in a top school district – even if the bathrooms look dated.
2. Size matters
There’s no arguing about the size of a home – it’s as big as it is. “Things trade at market value. You can’t fool anybody,” says Saatchi. “People are paying for square footage,” she says. In other words, buyers, if you want the extra bedroom, you’ll have to pay for it. And sellers, calling it “spacious” in the listing won’t make it so -- so price it according to its actual footprint.
3. Comparable sales
This is the magic number: The most recent sale prices of similar homes in the neighborhood will be the biggest determining factor in a home’s market value. For buyers, that means a low-ball offer won’t fly in an area where comps are selling for more. And sellers should have a good idea of the going rate in the area and price accordingly – because buyers can look it up. “They don’t need an expert. They can look at property records and see what the other properties have sold for,” Saatchi says.
4. Perks and flaws
Once you know what the comps have been selling for, you can tack on a few dollars for kitchen upgrades, or discount the price for a noisy corner lot – but don’t stray from your price range, Saatchi says. For instance, “If the last three houses that had same number of bedrooms and bathrooms sold for $250,000 we might be able to ask a little more because one has really pretty landscaping. So we’ll put a little premium on it and list at $265,000,” she says.