The Art & Science of Pricing A Home

Determining what the market will pay for your home

Coming up with the right price to list your home is daunting.

 

  • It’s not a fixed number, or what we might expect to get for it – it’s not the number we need to make to break even on renovations or to what you need to buy our next home.
  • It’s not what a neighbor got for hers last week or last year, it’s not what one of the property listing sites estimates you could fetch.
  • It’s not the appraisal value of your home, either, which is a doozy to digest – and why wouldn’t it be?

 

If our homes are so unique — and we’ve put so much great care, time and investment into improvements, etc. why can’t we ask for the number that represents that?

I mean, you CAN — you can end up pricing your home however you like, at the end of the day. It is the homeowner’s choice —  but, if the end goal is to sell your home, with the expectation that someone will pay X amount for it, and in a reasonable amount of time — this often falls into the strategy philosophy camp I like to refer to art and science.

The science is data – what’s for sale right now that compares to your property? What similar homes have sold in the last 3, 6, 12 months in your area? What is that average price per square foot? And then comes the delicate science — and math of finessing the numbers to reflect the more unique or bespoke characteristics of the home. Sauna? Tennis court? Flag lot? Oh, the considerations and calculations!

The art bit is understanding people – the buyer — where the market is at, and what is the tolerance for price range where you are, at this exact moment? Where are the interest rates? What are people buying? Is it a condo? How many days on the market in that zip code have similar properties taken to sell? Is your style of home super popular right now? That neighborhood is so hot homes sell in less than a week? That’s data, too, of course, but it’s truly understanding that mindset, that appetite that is the real finish work when it comes to determining the price at which to sell your home. The additional artistry is understanding your priorities when selling? Have to have it sold quickly? Don’t care how long it takes you want the right buyer who’s willing to pay your price?

Of course all of these things factor in. It’s touches on the emotional, the financial, the very core of our fears and that which is most important to us. That’s why it’s so incredibly nerve-racking thinking you’ve either left money on the table or you’ve aimed too high and over-reached, possibly having to consider a price adjustment or pulling it from the market until a different time or after having done some value-add improvements.

 

It’s a tough conversation at times. Often, I’ve found, through the art & science method, you can determine a range: factoring all of these elements in, that provides something that everyone can tolerate — and possibly, very possibly, find very satisfying on closing day.

 

What are the actual costs of purchasing a home?

Whether you’re a first time home buyer or buying for the first time in a long time, we can help you get a handle on the full costs of buying a home.

Down Payment:

Most people know that they need a down payment and that the rest of their purchase will be secured with a loan from a bank. The down payment typically ranges from 3.5% up to 20% of the purchase price. For a $500,000 home that equals $17,500 up to $100,000 in cash.

What else will you need to pay for? Inspections, appraisal, closing costs and prepaid expenses, repairs and updates.

Inspections:

One of your first steps in the purchase process is inspections. We recommend a general home inspection and if applicable, a sewer scope, radon test and oil tank locate plus soil sampling, if necessary. The total costs for inspections vary depending on size of house, which inspections you choose to complete and the inspector’s fees. We recommend budgeting $800 to $1,200 for all inspections.

Appraisal:

Toward the end of the inspection period your lender will order the appraisal. An appraiser will conduct a walkthrough of your new home and complete a report which determines the market value of the home based on specific calculations and assessments. Appraisals run $500 to $1,500.

Closing Costs:

At the end of your transaction you will be responsible for closing costs and prepaid expenses. Your lender will be able to tell you these costs once you are pre-approved. These fees average between 3% and 5% of your loan.  Fees include things like title insurance, taxes, loan fees, homeowner’s insurance, home warranty (view it here), title insurance and escrow fees.

Now for the fun stuff:

Once your purchase is complete you get to pay for the fun stuff! Now that you own a new house, it’s time to make it your home. Final costs include repairs not included in the transaction, updates of your choosing and new furniture fabric corner lounge.

About Us: Over the course of their professional partnership, Aryne + Dulcinea have helped over 200 clients prosper in their new lives. During this time, they have prided themselves in their top-notch selling abilities, with homes outperforming market standards, consistently exceeding list price while most of their listings sell in under 7 days. Whether you’re looking to buy or sell, Aryne & Dulcinea will work in collaboration to guide you in investing in your future and reaching your real estate goals.

Successfully Challenging A Low Appraisal

There are so many milestones in the home-selling process that it’s easy to overlook perhaps one of the most critical steps – getting an appraisal to come back at or above the sales price. Let’s talk about when and how it works, and what you need to do if the appraisal comes back lower than the sales price.

When you’re selling your home, one of the best things you can do is to hire a licensed real estate broker to help you prepare and list your home. As I tell all of my clients, the best sales strategy is to price the home correctly. This doesn’t mean selling it for a price that has no basis other than your gut instincts or what you want to see it sell for, but instead having an in-depth discussion about what gives the home its value, what decreases its value, and determining the pros and cons of a certain sales price. Pricing correctly makes it much more likely that your home garners a lot of attention in the first few days on the market, resulting in one or more offers at or over the asking price, and getting under contract as quickly as possible.

Establishing an accurate sales price is part art and part science, but it is absolutely critical for an efficient, effective and profitable sales transaction.

Here’s a quick overview of the sales process prior to the inspection contingency being lifted:

  • Sign a listing contract with your real estate broker
  • Research, discuss, and select a sales price
  • Prepare your home for market: make updates, declutter, stage the home, have professional pictures taken
  • Go Live to the market, schedule open houses, navigate showings
  • Receive and review offers
  • Select the best offer, based not only on price, but also the other terms: reputation/quality of lending institution, days to closing, length of inspection period, size and strength of earnest money & downpayment, any other unique terms and conditions
  • Review the buyer’s repair addendum and negotiate new terms around repairs, credits and (potentially) a new sales price

“So everything is done, and now we just wait until we sign papers and the transaction closes, right?” The answer is, “Not quite yet.”

At this point, once the inspection contingency has been lifted, a lot of the work IS done for a transaction between the parties, but then the lending institution for the buyer will order the appraisal, to establish a value for the home, which helps ensure that the sales price for the home is equal to or less than the value of the home. The reason for this is fairly obvious – if the buyer stops making payments and the bank needs to foreclose on the loan, the bank itself will have sufficient collateral upon resale to cover the defaulted loan.

The appraisal is a step that often gets overlooked because the sales timeline is filled at the front-end with so many details and milestones, that it’s easy to forget a lot of the major moments occur after the inspection contingency has been lifted and when the parties are full-steam ahead on closing the transaction (especially if you’re the seller).

Getting back to the focus of this article: a big hitch in the sales process occurs when the appraised value comes back at LESS THAN the agreed sales price. What happens then? Well, the sale can either fail because the buyer can’t get a loan based on the current value of the home, the buyer can bring more money to the table to make up the difference, or your listing agent can challenge the appraisal on various grounds and make an appeal to have it adjusted to more accurately reflect its true value – which is ideally at or above the sales price.

I’ve successfully challenged a low appraisal for one of my listings, and was able to get the appraisal adjusted upwards in value to help save the transaction. These are the steps I took, and how I did it:

  • Find out the specific process, steps and requirement that the lender uses to challenge an appraisal – also called “reconsidering of value” or “appraisal rebuttal” – and follow those instructions and forms from the lender to a “T”. Don’t let the hard work of the reconsideration request go to waste because you didn’t follow their instructions correctly.
  • Remember that appraisers and real estate brokers operate in slightly different worlds. Appraisers are limited to answering questions, providing objective information, and generally remaining fairly conservative in their valuation. Real estate brokers tend to be optimistic, creative and flexible in their approach to value, and operate in real-time with insights into the current market and how buyers are reacting to pricing of various features and home types and conditions. Somewhere between these two worlds is usually where the value of the home is found.
  • Stick to the facts, and don’t make it personal. Just find all of the objective information that’s either missing or incorrect about the home, and point that out. Believe it or not, appraisers can miss major aspects of the home, or make small errors that have an outsized impact on the final value. But not being respectful and making it personal is a sure-fire way to lose your appeal.
  • Find comparable sales that the appraiser might not have taken into account, and explain why they are better comps than the ones they included. (But don’t offer more than 3-4 alternatives.)
  • Provide real-time market feedback: point out features about the house that made the house particularly attractive from prospective buyers. The appraiser isn’t privy to these insights which can be helpful in assigning value where they might not have given much value (or assigning greater value than they already did).

The request for reconsideration usually takes a day or two for the appraisal management company to review, and is either rejected outright or sent back to the appraiser to consider making changes. The best possible outcome is for the appraiser to adjust the valuation to a point that is at or above the sales price. Once that happens, the lender’s requirements for valuation are met and the underwriting process can continue on through to closing day. This results in happy buyers and sellers!

Being aware of the market values for your home, collecting relevant information from prospective purchasers, and being a proactive advocate for your interests are some of the most important values that a professional real estate broker possesses. Successfully challenging an appraisal is but one way we bring value to our clients, and how you can sell your home in an efficient, effective and profitable manner.

Do you have more questions about how this works, or what the sales process might look like for you? Give me a call and let’s chat!

 

ANDY MEEKS
Living Room Realty

Licensed Oregon Broker | Earth Advantage REALTOR®
andy@livingroomre.com | 971.400.0195 | PDX

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