Pricing a home effectively is perhaps the most important step you can take toward selling your home quickly and at a satisfactory price. Unlike an ounce of gold, a home doesn’t have a fixed value; rather, its value is defined by conditions that change constantly and sometimes rapidly, such as the health of the local real estate market, nationwide interest rate trends, and local crime rates.
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Fair Market Value
The fair market value (FMV) of a home is the price that the market determines the home is worth at the time of sale—one that a buyer is willing to pay and a seller is willing to accept. The most effective way to price a home for a quick sale that satisfies the buyer and seller is to assess and approximate the home’s FMV and make that value the asking price.
How to Determine a Home’s Fair Market Value
The most effective way to determine a home’s FMV is to conduct a comparative market analysis (CMA), a side-by-side comparison of the prices and features of your home against those for recently sold or for-sale homes in your area. In most cases, the CMA consists of two sets of data that your agent prepares:
- Comparable homes on the market in your area: This list usually includes homes that have been listed within the past 3–6 months and are still on the market.
- Comparable homes that have sold in your area: This list usually includes homes that have been sold within the past 6–12 months, though agents sometimes include data from as far back as two years.
Your agent’s CMA should include specific details about each property, such as its asking or selling price, location, square footage, number of bathrooms and bedrooms, special amenities (stone fireplace, pool), and the price per square foot.
Other Sources for Determining Your Home’s FMV
A thorough CMA is usually enough to enable you and your agent to determine your home’s FMV. However, if you want even more data before setting an asking price, consider the following options:
- Independent appraisal: You can hire a professional appraiser to provide you with an unbiased estimate of your home’s FMV. Appraisals usually cost $250–500 and take several hours to conduct.
- Open houses: You can attend open houses in your area to see for yourself how properties like yours compare, inside and out.
- Online sources: Several websites provide free, instant estimates of FMV based on data such as the home’s location and selling price history. The two most popular such sites are www.zillow.com and www.housevalues.com. Consider the FMVs that these sites provide to be very rough estimates.
How to Set the Right Price
Your asking price should not necessarily be equal to your FMV. Instead, use your FMV as a starting point, adjusting your asking price up or down based on:
- Urgency: If you must move as soon as possible, you might consider lowering your asking price 10–15% below your home’s FMV. The lower price will likely attract more buyers and expedite the sale.
- Local inventory: Ask your agent to provide you with historical data on the inventory of unsold homes in your area. If the current numbers point to a glut in the marketplace—and, therefore, a buyer’s market—it’s probably a good idea to set your asking price 10–15% below the FMV to attract bargain hunters.
Though in a few cases it might make sense to set your asking price above the FMV (as you would in a very strong seller’s market), that plan usually backfires. Since most buyers work with agents, they have access to the same FMV data that you and your agent consult.
As a result, buyers can spot overpriced homes immediately and usually ignore those listings. Frustrated sellers gradually ratchet their prices down to align with the FMV, but in that time, new listings crop up that overshadow the languishing mispriced listings.
To make matters worse, sellers who misprice their homes lose negotiating power to buyers who know how long the home has been idling on the market. In short, it’s best not to set your asking price above your home’s FMV.