Homeseller's Guide Part II

Determining A Fair Price

The first step in selling any property is determining the fair market value of the property. If your asking price is too high, you won't sell the property. If too low, you may sell quickly, but you will be losing money you need not lose. Even if you are motivated, and must sell quickly, there are ways to sell quickly while asking a fair price.

For example, a $100,000 home offered at $100,000 might not sell fast if the terms are all cash (hard terms). But that same home, offered at the same price could sell quickly with the aid of some creative financing (discussed later), which might include some owner financing, deferred down payment or other strategy.

They are any number of ways that fair market value can be determined. The fastest and easiest method, which is also the most expensive at an average cost of $250-$350, is to have a certified appraiser come and appraise your property.

Another method, used by most Realtors is through "comping". Comping simply means comparing your property with other similar homes in the neighborhood that have recently sold. For example, if you are selling a 3 bedroom 1 ½ bath Ranch with a one-car garage on an acre of land, you would comp your home against another recently sold 3 bedroom home, preferably with a one-car garage on about an acre. You would then add or subtract dollar amounts according to the differences between the two properties.

For example, let's say you discover that a 3 bedroom 2 bath ranch, with a two-car garage on 2 acres recently sold for $150,000. A local builder tells you that a two-car garage is worth $5000 more than a one-car, and a full bathroom is worth about $2000 more than a half-bath. The tax assessor informs you that the "extra" acre is worth roughly $15,000. By subtracting these differences, you can fairly determine that your home - assuming the general condition is the same - is worth about $128,000. However, your home has whole-house air conditioning, and the comp does not, so you can add about $3000. And you have a large deck, which the comp does not, valued at $2000. Therefore, fair market value for your home might be closer to $133,000.
For your benefit, "The Simple Man's Guide to Real Estate" includes a free Market Value Calculator spreadsheet, on disk. Simply input the selling price of a comp, then type in the value of the differences in the appropriate places. The spreadsheet will keep a running tally, and when finished, will provide you with a close value for your property.

Bear in mind that you should use at least two or three homes for comping, since some sellers may very well have undersold their properties. It is not unusual for a $100,00 home to sell for $85,000, for example, particularly if the seller was motivated to sell quickly. By choosing more than one comp, you can determine a rough average, and use that average as your base comp figure.

There are a number of vendors - many on the Internet, who can provide you with info on houses recently sold in your area. Though there is always a small fee for this service, it is well worth it. It is noteworthy that, while comping is pretty solid, it is not infallible. Property values can quickly rise or fall in an area, and your comps may have sold six months ago. Take a little time to go to open houses, and check what prices are being asked TODAY, for homes similar to yours. This can indicate that prices are rising or falling, and may affect your asking price which, until now, were based on SOLD comps.

Yet another option is the "desk appraisal". At a cost of around $60, this could save you time and work. A desk appraisal, done by a certified appraiser in your locality, will give you an up-to-date "range" of values for your home, based on the info you provide on your home and his most recent comps. You would then choose a price somewhere within that range. This method also has the benefit of providing you with a piece of paper from an appraiser to help you justify your price with sellers.

It is also worthwhile to note that the single most important reason why a seller selling his own home fails is simply because the property was overpriced. Most of us humans tend to do that because a) we have sentimental values placed on the property, distorting our sense of value, and b) we tend to overlook problems with the home because we have lived with them so long that we no longer notice them. In most every case where a frustrated seller finally decides to list with a broker, and the house sells, it is usually because the Broker has convinced the seller that the price must come down.

To compound the problem, many sellers who broker their own homes will ask full value. They figure that means extra bucks in their pocket because they did not go through a Realtor. However, nearly every buyer who shows an interest in a FSBO property expects to share in those savings. They realize no commission will be due, and figure the seller can well afford to share those savings and still come out ahead. If you are not prepared to share those savings, either by reducing the price about 2% or by offering to pay part of the buyers' closing costs, he will possibly look elsewhere. This may not be the time to be "penny wise and pound foolish".

Finally, take note that during normal markets, most homes sell within 10% of a properly set asking price. Therefore, you might consider setting your price at the high end if a) the market is fast (homes sell in 30-45 days) and/or b) your home is in good condition. If the market is slow and/or your home needs some work, consider pricing at the low end. But whichever you choose, leave yourself room for negotiations. A happy buyer is your objective, and the quickest way to make him happy is to let him think he won during negotiations. Let him dicker you down a bit, or sweet-talk you into good terms, particularly if you have left some room for him to do so. In other words, do not start out by offering your low figure and best terms.

Example: Your home is valued at $135,000-$145,000. Your low figure is $135,000, and you are willing to pay $2000 toward the buyers closing costs. In a fast market, you might start by asking for $145,000. Buyer can then feel very good about buying if he gets to "dicker" you down to $140,000 AND get you to pay $2000 in closing costs. On the other hand, if the market is slow, you may want to advertise that price is "negotiable, and seller may pay some closing costs for the right buyer". This lets prospects know that they just might get a good deal, without committing yourself to anything in particular, leaving that up to negotiations.

COMING NEXT: Before Your Advertise - PREPARE!