To sell a property, among your first considerations is to determine how much to sell it for. In order to determine your sales price, you first must determine the actual fair market value of the property. Of course, the proper way to proceed is to determine the actual fair market value long before the time to sell it arrives for you. This must then occur at the very outset of looking at the prospective real estate. You cannot ever negotiate to buy a house without having an understanding of what it is worth and a clear expectation of what you should sell it for.
In the most simple analysis, a house is worth what you can sell it for. The complication is that nobody knows exactly what a house is worth and it is easy to be misled when determining the value. For example, take appraisals. An appraisal is nothing more than an educated opinion of worth. Granted, appraisers are trained to determine value. However, opinions can and will vary among appraisers. Three appraisals, all from qualified appraisers, all done on the same property the same day will most often have three different values.
Variances in values are often a recognized function of circumstance and need. This is often so with mortgage refinancing. It is neither unusual nor unexpected for mortgage brokers to have appraisers they customarily call upon to inflate values up to 20% more than what the property is actually worth in order to close a loan they are pushing to close. Mortgage brokers in such cases have been known to tell the appraisers what they need the property to appraise for so the result they seek can and will happen.
A property is not worth what an appraiser thinks it is worth, it is not what a realtor says it is worth, it is not what a seller hopes it is worth, and it is most certainly not worth what you want it to be worth. A property is worth what you can sell it for.
The proper steps to best determine what a house is worth and best estimate what it should sell for on the open market is to secure comparable values of comparable properties. The comps need to or should come from the same neighborhood and you need to look at what they sold for in the immediate past, review and compare similarly situated properties that are either currently pending for sale or are actively listed for sale, and the “days on market” times for each of them.
To determine fair market value is both an art and a science. There is neither any simple formula or calculation nor any real estate tool or application to rely upon. You cannot simply plug in a set of numbers and get that perfect value. Not that simple to be sure. You need to consider a number of different factors to obtain your best estimation of fair market value. Knowing what a house is worth determines your listing price for sale and of equal importance, your purchase price when you buy it. It remains a good rule of thumb to estimate a property value within a 5% variance.
Never become emotionally attached either to the property or the deal. All too often, new investors want a deal so badly they end up paying too much after having convinced themselves it has more worth than it actually does.
It is also very important to factor in variables that must be calculated when pricing your property in relation to available comparable properties. Variables can have the affect of raising or lowering property values. The number of bedrooms and bathrooms, the square footage, school districts, kitchen and bathroom upgrades, a pool in the backyard, even traffic patterns within the neighborhood, to name a few, can play a role. Others may include sales dates, sales trends, housing inventory, even the reason for selling.
Determining the actual fair market value is a skill set you need to develop and master without emotion and, in time and with effort, you will. To do a thorough and accurate job of it will take time, particularly at the outset. It will be time well spent, however, with returns well worth the effort.