Your house is beautiful. It’s easily the nicest home on the block. You have impeccable landscaping on a corner lot, and you poured your savings into a new kitchen and a luxurious master bathroom. You even converted the attic into a guest suite.
“This house is going to sell itself – and for much more than the other houses in my neighborhood,” you think to yourself with confidence.
Or is it?
This may come as a surprise, but your house isn’t worth what you paid for it – or what you owe on it. Setting a price for your home based on the amount of money you need to recoup your investments or to put a down payment on a new house will only bring you frustration and disappointment. Sure, all of the updates you made play a role in determining the overall value of your home, but the impact is miniscule compared to the other factors that ultimately decide your market value.
What is market value?
To put it simply, market value is the price at which a particular home will sell within a reasonable amount of time, which in most real estate markets is between one and three months.
If you’re thinking about listing your home, make sure you find out what you can realistically sell it for beforehand. To do this, talk to a real estate agent. They can show you “comps” – comparable homes in your area with similar square footage, number of rooms, and updated features. This will help you understand the range in which your home is most likely to sell in today’s market.
How is market value determined?
As a seller, you are ultimately in charge of the list price for your home. But the sales price is determined by what the buyer is willing to pay. There are, of course, things you can do to influence buyers and help them see more value in your home (heated bathroom floors, anyone?), but in the end, your home is only worth what the buyer will pay for it.
Aside from the current condition of your house, your neighborhood is one of the most important things to look at when determining market value, as prices fluctuate based on location. For example, a house in La Jolla, California could be worth $500K, but the if the exact same house was located in another part of San Diego, its market value might be half as much – or less. This is why when determining the market value of one particular house, it’s important to only compare it only to similar houses in the same neighborhood.
The bottom line
What your house is worth in the eyes of a buyer depends on a lot more than the fancy upgrades you made as a homeowner. A real estate agent can give you insight to what similar homes are selling for in your particular neighborhood, and this will help you to set a realistic price that will resonate with buyers.
Image: Ed Reeve/VIEW/Corbis