Arguably, the most important job a real estate broker has when asked by clients to market their properties is how to price your home for sale. The question we get from our principals early in the process is, “…How do you set the right price for my home?...” In this brief article, we will review methods, computer models (and the reason for their lack of credible accuracy), and lastly the mistake nearly every real estate agent makes when pricing property.

There are three accepted methodologies for pricing a home.  Brokers will use one of these three methods

·        Cost approach

·        Income approach

·        Competitive Market Analysis approach

What we find is that these three methods have three very different property types for which the methods are appropriate. The “cost approach” is most often used for specialty buildings, for example, valuing a church.  The “income approach” is best for investment properties for which we compare capitalization rates in order to determine the correct list price and/or offer price.

The “competitive market analysis” approach is best used for residential properties.  The concept is simple but the application of the concept is complicated as it calls for the expertise of the experienced real estate broker to adjust for variations in value factors such as view, home condition, lot utility and micro-location between the competitive sales and the subject property. 

How to price your home for sale

By the way, it is the nuanced interpretation of these value factors, accurately made by experienced brokers for which computer models are grossly inadequate.  This inadequacy causes the huge margins of error inherent with the algorithms available online to the public.  As an example, most of these models, while they do “pick” a number, also provide, in the fine print, a range of value.  When you click on the link to see that range, you immediately realize how unreliable their estimates are because the range of value these models provide can be as much as +/- 30%! How is that in any way helpful?  You might as well just pick a number by blindfolding yourself and throwing darts at a dartboard.

One of the more important questions you will have as a homeowner when contemplating how to price your home for sale is whether you price it a little under market to capture enhanced demand, multiple offers and maximize the odds of getting significantly over list price offers OR whether you price it a little over “fair market value” and build in some negotiating room. You might be wondering what the criteria set is for a broker in advising you which way you should decide. This is a question for which the answer is highly fluid and is answered in a case by case fashion, so use either the blue Calendly link below or the Contact Us tab at the top right of this page to pose the question to me that I can provide an answer that is tailor made for your situation

Finally, what’s the mistake nearly every real estate agent makes when reviewing competitive sales and even if they do accurately adjust for nuanced variations between the competitive sales and the subject property as to the value factors (view, condition of home, lot utility and micro-location)?  Agents forget that the market is ever changing.  Supply/demand forces that existed when the competitive sales were placed into escrow are nearly always different than the supply/demand forces in place at the time of the analysis for the subject property. 

The question therefore is how should a real estate broker properly adjust for these changes in supply/demand forces let alone how to even accurately measure these forces?  I invite you to contact me through my website https://www.palosverdeshomesbest.com/new-contact-us so that I can share this information with you.  It’s vitally important because not taking changing supply/demand forces into account will almost always cause you to lose money. 

For answers to other important questions that real estate brokers across the country have answered, please refer to this very informative article on Porch.com

While I pointed out the failures of online computer algorithms which conclude what a Buyer MIGHT pay for your home, these models are still interesting. I invite you to use these two platforms so that you have multiple models to compare and contrast. Do you see any consensus around a particular number? Both of these platforms are instant. This one provides 3 independent models and this one provides additional market data which you will find helpful.