When you talk to your real estate agent about creating a list price to sell your home, the agent will likely discuss comparable homes that have sold recently in your area. These homes, often referred to as “comps” help to establish an appropriate price for homes like yours in the neighborhood. With the answers to these questions, you can start to understand the process behind finding a list price that will be effective in selling your home.
How Are List Prices Set?
As the owner, you naturally get to decide the price of your home. However, there are a number of objective metrics experts use to determine the statistically best list price for your home.
- appraised value
- list prices of comparable homes
- final sale prices of comparable homes
- the amount you owe on the mortgage
Although a lot of sellers formulate a list price based on the amount they paid for the home, this is not necessarily the most useful or appropriate metric. With these other values in hand, you and your real estate agent can settle on a list price that will hopefully engage buyers.
What Are Real Estate Comps?
There are two general ways that you can look at comps in your area. The first is for homes that have actually sold within the past few months, and the second is for homes that are currently on the market.
The comparable properties consist of homes that are located very close to yours (if not in the same neighborhood), of a similar size and quality. The former is generally considered more accurate, simply because list prices can be very subjective. What buyers actually pay for comparable homes helps you to see what buyers may be willing to pay for yours.
What if the Local Market Is Slow?
Sellers who live in rural areas, or in places where the real estate market is sluggish, may need to extend their radius or their timeframe to find a few comps that are appropriate. Real estate agents and appraisers prefer to use homes within a relatively short distance that sold less than three months ago.
This standard exists because prices may vary dramatically from neighborhood to neighborhood, and prices fluctuate regularly throughout the year. Your real estate agent can help you find appropriate comps if you find that it is difficult to get reliable numbers close to your property.
Can Homeowners Create Comps?
It is not particularly hard to find the final sale prices for homes in your area, but it requires more than this to decide which homes are comparable to yours. As a result, while you can approximate what you think are the best real estate comps for your home, you may need professional guidance to know for sure.
For example, you can easily see that a home much like yours sold for much less or much more than what you think your home should be worth. However, you may not be able to discover the reason for the difference. Your real estate agent could have access to information that renders a possible comp less relevant, such as recent home improvements that increase the value, or the presence of mold to decrease the price.
How Many Comps Are Necessary?
Selecting any number of real estate comps for an area with plenty of recent sales is somewhat of a subjective affair. Your real estate agent uses knowledge of the process, the area and the individual properties in question to choose the comps that are closest to yours. You can certainly request that an appraiser or another agent create a new set of comps to see if they match.
However, your ability to use the comps to set a list price that works for you depends on your trust of the person providing the information. Some sellers feel that the real estate comps are too low, but it is important to take all emotion out of the equation and look at things objectively.
Should You go Low or High?
Ultimately, comps are simply a tool you use to decide a list price to sell a home. For those with a need to sell their home quickly, a list price a little below comps may draw more buyer interest. Set your list price competitively either way, so that you can reasonably expect to sell the home within a few months.
Creating a list price for your home requires you to consider what homes in your area are worth. With real estate comps and other information, you can set a viable list price that is appropriate for the property. Speak with your real estate agent early in the process to get a leg up on the competition!