How much can you sell your home for? Probably about as much as the neighbors got, as long as the neighbors sold their house in recent memory and their home was just like your home.
Knowing how much homes similar to yours, called comparable sales (or in real estate jargon, comps), sold for gives you the best idea of the current estimated value of your home. The trick is finding sales that closely match yours.
What makes a good comparable sale?
Your best comparable sale is the same model as your house in the same subdivision—and it closed escrow last week. If you can’t find that, here are other factors that count:
Location: The closer to your house the better, but don’t just use any comparable sale within a mile radius. A good comparable sale is a house in your neighborhood, your subdivision, on the same type of street as your house, and in your school district.
Home type: Try to find comparable sales that are like your home in style, construction material, square footage, number of bedrooms and baths, fit and finishes, and usable lot size.
Amenities and upgrades: Is the kitchen new? Does the comparable sale house have full A/C? Is there crown molding, a deck, or a pool? Does your community have the same amenities (pool, workout room, walking trails, etc.) and homeowners association fees?
Date of sale: You may want to use a comparable sale from two years ago when the market was high, but that won’t fly. Most buyers obtain mortgages, and appraisers generally say comparable sales can be no older than 90 days.
Sales adjustments: Did the comparable-sale sellers give the buyers downpayment assistance, closing costs, or a free television? You have to reduce the value of any comparable sale to account for any buyer credits.
Agents can help adjust price based on insider insights
Even if you live in a subdivision, your home will always be different from your neighbors’. Evaluating those differences—like the fact that your home has one more bedroom than the comparables or a home office—is one of the ways real estate agents add value.
An active agent has been inside a lot of homes in your neighborhood and knows all sorts of details about comparable sales. She has read the comments the selling agent put into the MLS, seen the ugly wallpaper, and heard what other REALTORS®, lenders, closing agents, and appraisers said about the comparable sale.
More ways to pick a home listing price
If you’re still having trouble picking out a listing price for your home, look at the current competition. Ask your real estate agent to be honest about your home and the other homes on the market (and then listen to her without taking the criticism personally).
Next, put your comparable sales into two piles: more expensive and less expensive. What makes your home more valuable than the cheaper comparable sales and less valuable than the pricier comparable sales?
Finally, tour some of the homes currently on the market. These homes will be your direct competition, so look at them with the eyes of a potential buyer.
Are foreclosures and short sales comparables?
If one or more of your comparable sales was a foreclosed home or a short sale (a home that sold for less money than the owners owed on the mortgage), ask your real estate agent how to treat those comps.
A foreclosed home is usually in poor condition because owners who can’t pay their mortgage can’t afford to pay for upkeep. If your home is in great shape, the foreclosure should be priced lower than your home. However, if the lender has come in after a foreclosure and restored the home, a different value needs to be given. Your agent can discuss the comparative value of the foreclosed home.
Short sales are typically in good condition, although they are still distressed sales. The owners usually have to sell because they’re divorcing, or their employer is moving them out of the area. How much short sales are discounted from their market value varies among local markets. In some markets, sellers price short sales the same as other homes in the neighborhood.
So you have to rely on your real estate agent’s knowledge of the local market to use a short sale as a comparable sale.