Finding A Home's Value

The 5 Factors of Pricing

 

When you're looking at the value of a home, often times the puzzle can seem too complex with too many moving parts. The truth about pricing is very simple. There are only 5 main variables that dictate price for a home. Sure the market with change the value you list a home at and the strategy you use for marketing your value, however the five factors below are the baseline from which all price quantification are derived.

 
 
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Location

Unless you've been living under a rock you know that location matters when it comes to real estate. This is common sense but it needs to be stated clearly. Often times when we see Realtors struggling with pricing it's because they are having trouble defining the area that is relevant. We have found 2 main ways to find relevant and accurate area statistics.

  1. Neighborhood - If you are selling somewhere with clear neighborhood boundaries and characteristics, using the neighborhood name for your search generally works fantastic. The main thing you must look out for is misspellings or different spellings of the same neighborhood in your MLS. For this reason sometimes we see better results when you draw your location in a map search of the MLS.
  2. Map Search - DO NOT USE RADIUS SEARCH! This is the most prevalent mistake we see. Radius searching is inaccurate and gives you homes that don't fit in the relevant area. When you do your map search look for "natural barriers." Major roads, lakes, golf courses, ravines and a slew of other barriers will dictate your search. These barriers are like the walls of old kingdoms. The houses inside and outside are not even close to the same.

Size

The first time I heard a Realtor make the somewhat suggestive joke of .... "As you know... SIZE MATTERS!" I kind of cringed. Now having heard that joke and paradigm probably hundreds of times I realize why the joke is made. It makes you remember the simple fact that the bigger a home is the more likely it is to sell for more. This isn't always a straight line value increase as the price per square foot valuations of appraisers would have you believe, but it still holds true.

**Usually this size variable refers to real livable square footage. Unfinished basements or awkward attic space in most cases doesn't really add much value, when it comes to size. Something like that would have any value it provides show up in the special features.

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Price

Price is a factor in pricing? What the heck does that mean?

Don't over think this. When you price a home you must look at what other homes in your location have sold for. If a house of similar size sold for a certain amount it will dictate what your listing will be able to sell for.

Houses while unique in some ways are also still highly commoditized for the majority of listings. They will mirror each other in sales value.


Special features and amenities

Now that I just said homes are commoditized, let's look at the things that make this home different. Generally we are looking for things that make this home unique and add or cost significant value. If everyone in the neighborhood has young trees but your listing's trees were planted years earlier and are mature and shade giving that's a positive. If your house backs to the interstate.... uh.... yeah.... that's bad. Here are the main things we see making major effects on a consistent basis.

  • Hard Surface Upgrades - Counter tops and Flooring Usually
  • Unique Location Aspects - Backing to Green Belt (+), Backing to a major roadway (-), Layout of the yard (Big backyard compared to big front yard), Size of the Yard, Garage Size, Height of Basement Ceilings
  • Updating - Usually we use this in older neighborhoods. If the rest of the area is living in shag carpeting having more modern fabric patterns becomes a unique distinguisher.

**NOTE: All of these features are only special if they're different from the location average. If your subject property has hardwood floors but so does every other home on the market in that area it's not going to add value versus it's neighbors. It's still a great feature and you should market that, but it won't add additional value at this point because it's expected for that area.

Also included here are amenities like the ability to walk to shopping close by, a neighborhood pool or a long list of other area benefits.

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Condition

The final factor of pricing we must look at is condition. This is another pretty common sense factor. If the house looks like trash it's going to get a trash value price. To sound a little more PC, homes that need extra TLC can find someone who is willing to give them that love, but they're going to pay for it with a price cut.

Also included in the condition factor is the condition of home ownership. If the house is emaculate, but a foreclosure (wouldn't it be nice if that was the case ever!) it will still take a value hit. Homes that are in any of the below catagories usually take a significant hit in value.

  • Foreclosure
  • Needs TLC
  • Not-Updated
  • Homes Used As Rental Properties
  • Unclean homes (FOR GOD SAKE HAVE A PROFESSIONAL CLEANER CLEAN THE HOME BEFORE OPEN HOUSES!)