If you're about to put your house on the market, you're probably wondering, "How much can I get for it?" Figuring this out is a two-step process, which typically involves:
- researching your home's likely market value, and
- settling on a list price that will most effectively bring in offers at (or above) that value.
Appraising Your Home's Market Value
Real estate prices can fluctuate quickly and widely, which is why it's important to draw on many sources, such as:
- The Multiple Listing Service (MLS). Kept by real estate agents nationwide, this database tracks homes that have been bought, sold, and everything in between. Although the public can access data on homes currently for sale, agents have access to a lot more. Your agent should be pulling out details on homes sold recently (within the past six months; three months if your market is shifting quickly) in your area (within a quarter to one half mile, adjusting for any dramatic changes in neighborhood). Important details for the agent to research include the price each house sold for, how much time it spent on the market, and whether the selling price was reduced or bid up from the original list price. Your agent should also be analyzing prices of home sales currently pending (awaiting the closing), which are the most up-to-date indicators of prices in your local market, and aren't public information yet.
- Websites containing past sales data. At Zillow, for example, you can enter your address and pull up sales prices for recently sold nearby homes. This data is less sophisticated data than your agent can get from the MLS, but can help you develop a sense of local home values. And, if you've visited or walked by these houses, you might know facts that the websites won't tell you—such as whether the owners added expensive landscaping or let the back yard turn into a junk pit—all of which will help refine your understanding of prices.
- Local and national economic news. Keep an eye on whether home prices in your area are heading up or down, where mortgage rates are going (the lower the interest rates, the easier it is for buyers to afford a home), the latest unemployment figures, and whether local homebuilders are feeling confident enough to start building new homes.
- Online estimates of your own home's value. Sites such as Zillow, Realtor.com, and Trulia will give you an estimate of your own home's value based on information drawn from public records about the house and past sales of (theoretically) comparable properties. Don't be surprised if your estimate (or in Zillow-talk, your "Zestimate") looks to be way off. A computer algorithm is no substitute for a live human who not can only check the accuracy of the basic data, but can also adjust for factors the computer can't see. Don't forget that buyers will be looking at these online estimates, though: They might question a list price that's far higher or lower. If you’re thinking about selling, consider logging on to these sites and entering data about your house—this can sometimes correct algorithm errors, and anyone viewing your house will get a more accurate picture of your home’s best features.
- Local listings and open houses. Check the classifieds, look at listing websites (such as those mentioned above, along with craigslist and other local marketplace sites), and visit local open houses to see what other sellers think is an appropriate list price for a comparable house.
Translating Market Value Into List Price
After you and your agent have gathered all this information, you should be able to put a dollar figure—or at least an estimated range—on your home. Then it's time to figure out whether that number is what you should actually use when listing your house. Put yourself in the shoes of buyers, who are scanning the listings trying to decide which houses to visit in person.
Overpriced houses are an immediate turnoff. Buyers tend to move on, thinking, "Why deal with an unrealistic seller when the sellers two blocks away seem not to realize what a steal they're offering?" Yet underpriced houses risk making buyers think there's something wrong with the place.
When to Underprice
Going lower than what’s objectively rational for your list price is often a good strategy. Why would you want to bring in buyers who can't afford your house? First off, the more people who look at your house and express interest by following up with your selling agent, the more other potential buyers will feel pressured to make a strong offer.
The second reason is that, regardless of your list price, buyers will make their own assessment of what your house is worth. Whether it's running hot or cold, the market tends to correct for underpricing, as buyers compete against each other and drive the price up.
Must You Accept a Full-Price Offer?
No—you can refuse any offer. This is important protection in the event you underprice thinking it will attract multiple offers, but receive only one bid at list price. There’s no requirement that you accept a full-price, contingency-free offer, either.
For more information on how to set the right list price, see Selling Your House: Nolo's Essential Guide.