Pricing: Fair Market Value
Contrary to belief, you do not need a real estate agent to determine
what would be the best sale price for your property.
Given today's accessibility to information, you can very easily gather existing sales data
by yourself to determine a fair market value for your property.
Once you obtain the sales data you should create a Comparable Market
Analysis using online pricing tools to help find a
range and value for your property. This Analysis will help you
determine a fair market value for your property.
If you want to have greater assurance that the value you determine is fair, then you
can always contact or hire one of these types of professionals, appraisers
or title insurance companies.
The Economy and Your Price
The condition of your local and national economy are going to have a direct affect on
the final sales price for your property, as well as the quickness (or slowness) in which
you will sell your property. Get in your car and drive around your local area.
Pay careful attention to the houses, buildings, offices, and other areas of land.
- What condition is the area in?
- Is the housing development increasing or is a factory being built down the street?
- Is the landscaping well kept or are there weeds growing everywhere?
- Are businesses thriving or are they closing their doors and going out of business?
On a national level,
- What is the trend of the stock market - up or down?
- Are people migrating to or from your geographical area?
- What is the unemployment rate?
If you must sell
immediately, the selling price might have to be reduced if the economy is weak. If you can, you
may want to consider holding onto the property during a weak economy to reduce any potential loss.
Internet Pricing Guidance
Different sources are available on the Internet for helping you determine
the fair market value of your property. There are two different types of
free services available, those assisting you with valuation and those listing
home sales in your neighborhood.
For a small fee ($24.95), you can obtain a comprehensive report of your property and surroundings from
Homeprice.net.
Comparable Market Analysis
Comparables, Comps, and CMA - Oh My! What are they you might be asking. Basically, they're all the same - it's a
Comparable Market Analysis (CMA) of your property - a spreadsheet or table comparing your
property sale to others completed in the past 6 months. Buyers will use this to determine if
your asking price is reasonable, too high, or a bargain.
You should construct your own CMA and use it in determining fair market value of your property. One simple
way is to create a computer spreadsheet to help average the home prices of comparable properties -
of course you can use the low tech solution of paper and pencil as well.
The spreadsheet should contain between three to nine properties (five tends to be a good number)
with the following characteristics:
- located in your neighborhood
- approximately the same age, size, and condition
- similar configurations and amenities
You will want to list the properties you decide to use as comparables in the spreadsheet. Make sure
your spreadsheet includes the following categories:
- Property Address
- Date Sold
- Sale Price
- Number of bedrooms and baths
- Square feet measurement of living area (exclude garage and unfinished basement)
- Lot Size
- Condition
- General Remarks
Once you have gathered all the information for your comparable properties, you can calculate an
average sale price. This is a good starting point for determining your asking price. Make sure to
weigh all the categories as well, square footage, lot size, condition, and other differences
you feel affect the price.
Job well done - you now have the information necessary for determining your fair market value
and the asking price you wish to advertise.
Qualified Professional Appraisal
Ok, maybe you want a second opinion, you can hire an appraiser. Keep in mind that you
will have to pay for this service, most likely a couple of hundred dollars. If you
call mortgage brokers, banks, or other lending institutions, you should be able to obtain a
list of qualified appraisers. Typically, a buyer needs to hire an appraiser per request of
whomever is lending the money for the mortgage, to ensure that the amount being lent to the
buyer does not exceed the fair market value of the property.
By working with an appraiser
that is qualified by lending institutions, you may be able to make a deal with the appraiser
that indicates that provided you sell your property within a certain time frame and the buyer
uses one of the lenders the appraiser is qualified with, the buyer will not need to have an
additional appraisal made. This technique may give you more negotiation with a buyer, you will
still have to pay the appraisal cost up-front, but the buyer now has one less fee at closing,
something that might just make the sale of your property more attractive.
Title Insurance Company Estimate
Finally, if none of these are appealing. you can get an estimate from the title insurance
company. Call the title insurance company and tell them you're planning to sell your property
yourself and will most likely use their services when ready. This request should be
free of charge. However, you might feel pressured to use the company's services in the
future or at the time of sale.
No matter how you derive your fair market value, these techniques are no different than what
a real estate agent would do for you. It's very simple and all the information is readily
available for you to easily and accurately determine a fair market value for your property.
The Asking Price
Here's a few final words about the asking price. Plain and simple, be realistic! All too often
we feel that our property is worth more than what the market will bear - that's right, the market.
Most likely your asking price will end up being different than what you and the buyer agree upon.
That's the fair market value. If your asking price is too high chances are potential buyers
could pass you by in belief that you have priced your property emotionally and not intelligently
(we know you'll be smart, that's why you've been reading).
If you hire an appraiser and they appraise the value of your property as $250,000, after you determined
the fair market value to be $200,000, don't be anxious to make your asking price $250,000 - chances
are that's too high. Simply revaluate your comparables, and adjust accordingly. However, keep in mind,
to many potential buyers "For Sale By Owner" properties are attractive because buyers believe
that they may find a bargain. Typically, they're right - no agent, less money.
Suppose for instance you determined that comparable properties are listing by agents at around $210,000,
but selling at $200,000. One suggestion is to consider setting your asking price at $200,000. Buyers will
immediately be drawn to your property and even if it sells for $195,000 you're still ahead of the game.
Remember, the seller who sells for $200,000 using real estate agents has to pay their 6% commission,
$12,000, netting $188,000.
If the price is right, then its time to disclose everything -->
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