When I meet with sellers their first question is what do you think the price is going to be?

This is an understandable question.  Your home is your most valuable asset, and you want to get the best price for it.  

So how do I as a real estate agent come up with a price for your home?

First, it is important to understand that real estate agents do not set a price.  Rather, I study what the market is doing, and tell you using as many facts as I can, where I believe your home is in the current market.  The two things that determine your homes price are, first of all, what will the appraisal property of the home be.  A licensed appraiser, hired by the buyers lender, will determine for the lender if the value of your home can back the mortgage amount the buyers is applying for to purchase the home.   The second thing that is considered is what buyers are wiling to pay for the property.  I know this second one seems obvious it's basic high school economics supply and demand, but it is something that a lot of sellers do not consider.  If we can justify the price through looking at past appraisal that does not necessarily mean that is the price a buyer will be willing to pay.  (Though, in a seller's market, as we are currently in during the spring/summer of 2021, they probably will.)

Let's take a look at these two things in a little more depth.  

Appraisal:  I recently heard it said that seller's are constantly looking out the windshield of a car, while the appraisers are constantly checking the rear view mirror.  This is a near perfect analogy of what an appraiser does when determining a value.  Appraiser will look at what has sold in the past 6 months, not what is currently listed, and not what is currently pending.  The appraiser's only interest is properties that have been signed, sealed, and delivered.  Typically, they will go back 6 months and they are looking for homes that are in the same school district, same township/neighborhood, same style (colonial, rancher, cape cod, etc...) same amount of square footage, and similar bedrooms and bathrooms, condition and upgrades are considered, as well as acreage.  All of that is important for us to remember as we look for the price for your home.  The most important thing to remember is the appraiser has the final say on value, and their eyes' are always looking in the review mirror.

Buyers:  As the appraiser has the final say on value, the buyer has the final say on price.  What are they willing to pay?  In a seller's market, like the one we are currently in, often, the buyer will pay a lot, but even if they are willing to go above the appraisal value their loan may not allow them.  So, when we price your home we still need to follow the closed homes in the area as a guide.  Unfortunately, the reverse of this is also true, just because we see other homes in the area that have appraised at a certain value, doesn't mean that buyers will pay that price for your home.  So when we set a price, we need to monitor our showings, and any offers you receive.  If we are not generating a lot of interest we may need to bring the price down a little bit.  So the interest generated in your property will also be a factor.  Sometimes, unfortunately, you have everything else, but may not be in the location buyers are looking for, or their may be another variable maybe a sloping yard, or lack of ability to connect to public water and sewer, etc...

Those are the two broad factors in pricing a home. In the next post I will look at the details we will need to consider when pricing your home.