How to Pick the Right Selling Price for Your Home

Couple places sold sign on a house for sale
Photo:

valentinrussanov / Getty Images

 

Not every seller realizes how to price a home correctly. Picking the right sales price requires expertise, and it's also an art in many ways. Relying on the advice of a real estate agent who keeps a finger on the pulse of the market can be invaluable when you're trying to sell your home.

Key Takeaways

  • Checking into comparable sales prices can be helpful, but take care to compare only the prices of homes that have sold within the last three months. 
  • Putting a lot of money into home improvements might not pay off unless the work involved a major upgrade, such as adding a whole new bathroom.
  • Look into what other sellers in your area are asking for their homes, but make sure those properties are as similar to yours as possible so you're not comparing apples to oranges.
  • Pricing your home too high can be worse than pricing it too low. 



The Difference Between List Price and Sales Price

A home's list price and its eventual sales price are often two different things. We'll call them Price A and Price B.

The first price to want to decide upon is Price B: your targeted sales price. That probably won't be identical to Price A: your list price. You can use market conditions to figure out how to choose Price A if you choose Price B carefully.

Comparable Sales May Affect Your Home's Sales Price 

People seem to remember the price of a home when a property first comes on the market, but they may not know the price of the home when it sells. You can go to websites such as Zillow.com to find out the sold prices, or ask an agent to provide you with comparable sale prices. But only prices within the last 3 months should be used, if at all possible. Don't use last year's prices.

Note

Just because a home down the street sold for $250,000, this doesn't mean that yours will, too, unless your home is fairly similar to that home.

Why Home Improvements May Not Pay

Very few homes return 100% of an investment made in home improvements, and that percentage of return declines over time.

Home improvements or upgrades in a brand new home are also subject to personal taste. Those granite-tiled counters might be worth nothing to a buyer who will rip them out and install quartz slab instead.

Note

Most home improvements depreciate in value unless they're significant, such as adding a second floor or a new bathroom. Some trendy types of improvements become out of date and out of style in just a few years.

Check Out Competing Prices

Check out the competition. These are the homes for sale that buyers will be comparing to your property. Compare their per-square-foot prices and not just the overall prices. Your home is probably worth considerably less money if it has 500 square feet less than the home that sold across the street.

Consider Pending Home Sale Prices

Homes that have sold but haven't yet closed escrow are generally either active contingent short sales or they're pending sales. You may not know the price of these homes because the price generally isn't disclosed until the transaction has closed. But you do know the list price. You also know that the list price was adequate to attract an offer. The home probably sold at list price if it sold very quickly with a few days on the market.

Choosing a List Price Depends on the Market

You really can't price a home too low. You can price it too high, and nobody will look at it. But it doesn't mean that it will sell for that price if you price it too low. You won't necessarily take a bath. It might pull in a lot of potential buyers if the price is very attractive. You might even receive multiple offers, perhaps each higher than the last.

Note

Buyers set market value. And nothing drives home prices up faster than a home every buyer wants to own.

You can ask more than market value for your home in a seller's market, and you might get a price higher than its market value. This can happen when there are very few homes available and a lot of buyers want them.

You might have to price your home a bit lower than market value to attract a buyer in a buyer's market. Buyers have a lot of homes from which to choose in this scenario. Your home might have to be in tip-top shape to sell. Every other home will most likely sell before yours if there's something wrong with it, unless your price is extremely competitive.

Why Location Matters

Remember that old adage: location, location, location. A home located on a busy street might be worth tens of thousands or even hundreds of thousands less than a home located on a quiet cul-de-sac. You can deduct even more from the comparable sales prices if your home backs up to a landfill or a commercial building.

Frequently Asked Questions (FAQs)

What is a comparative market analysis?

A comparative market analysis (CMA) estimates the fair market value of a home by comparing various features of the home to others that are currently listed or have sold within the last few months. Adjustments can be made if there are any major differences, such as if your home has an inground pool but none of the others do. This would add to your property's fair market value over the prices of the others.

What is a short sale?

A short sale occurs when a lender agrees to accept an offer that's less than the outstanding mortgage balance on the home. This typically happens when the homeowner is in financial distress, and the homeowner may or may not be responsible for paying the difference.

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Sources
The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
  1. Quicken Loans. "Comparative Market Analysis: A Guide."

  2. Remodeling. "2020 Cost Vs. Value Report."

  3. Realtor.com. "What Is a Comparative Market Analysis? The CMA Explained."

  4. Consumer Financial Protection Bureau. "What Is a Short Sale?"

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