Ever gotten excited about a house for sale, then looked at the price and thought, “Are they out of their minds?” Yeah, us too.
It can be a disheartening moment when you're house hunting. And that jaw-dropping asking price might simply seem like an arbitrary, money-grabbing number that's keeping you from your dream home. But before you dismiss a house for being too expensive, you should know that there are a variety of reasons a property is priced the way it is.
“Pricing a home is part science and part art,” says Kevin Vitali, an associate broker with Exit Group One Real Estate, in Tewksbury, MA.
Understanding the reasoning behind a home's price tag can make you a smarter buyer—and help you know exactly what you're getting for your money. Here are five factors that experienced real estate agents consider before slapping that "For Sale" sign on a home.
1. What's happening in your local housing market at any particular moment Current real estate market conditions—including how many houses are up for sale, and how fast they’re being snapped up—determine how a property should be priced. Low inventory creates a seller’s market with aggressive listing prices. A surplus of homes for sale results in overall lower asking prices.
Perhaps you know all that. But what you might not realize is how quickly it can all change.
“Markets can turn on a dime, and I find home buyers usually have old data in their heads; often, they’re lagging about six months to a year,” Vitali says.
That's why he recommends working with an experienced real estate agent who's familiar with the neighborhood you're shopping in and can assess whether a home is priced fairly—or not.
2. The (extremely specific) location of the house Yes, you’ve heard the old place-based adage (which we won't repeat here). But did you know how granular the idea of "location" gets? We're not just talking about being in a good neighborhood. Similar or even identical houses just streets apart from each other can have wildly different price tags based on things like traffic noise and access to quality schools, shops, and restaurants.
“The asking price also depends on what else is on the block; for example, is there a tear-down next door? And how old are the buildings to your right and left?” asks Sheldon Salnick, a Realtor® with Dreamtown Real Estate, in Chicago. “Is there a park nearby, or a dog run within five blocks?”
A quiet cul-de-sac or a busy thoroughfare will also affect the prices of homes on them, he notes, as will the direction the home faces (any hardened home shopper can tell you how much light affects the overall perception of a home).
And in most areas, properties with easy access to highways fetch higher dollars, Vitali adds.
3. The comps Often, Vitali says, sellers have a figure in mind based on nothing more than a wish. But real estate pros will do a comparable market analysis—what similar homes have recently sold for—before determining how to price a property.
“Historical data plays a huge role in setting a listing price; it's not a number just pulled out of the air. So find an agent who can interpret that data,” Vitali says.
“The name of the game is what the competition is charging,” Salnick adds.
4. The amenities (and overall appeal) of the home Sure, size matters. But today’s demanding buyers are concerned with much more than square footage—all of which helps determine an asking price, Salnick says.
"Clients prefer new construction, brand-name appliances, and large bedrooms—[preferably] at least three on one floor if they have kids—plus a den or office,” Salnick says of the Chicago market. “Light plays a major role in the value of a house: The more windows, the more people enjoy the house. Ceiling heights factor in, too:10 feet and up are where it's all at.”
Additional features such as parking, central air conditioning, outdoor space, and floor plan also affect the sticker price.
“Layout and functionality are huge; people want open layouts, so homes built in the '50s or '60s without open plans are priced lower,” Vitali says.
5. Age and condition of the home If you happen to fall for an aging, poorly maintained property that you're just dying to fix up, know this: You won't automatically see a deeply discounted price tag. It all depends on the home's location (see No. 2) and other factors we've discussed. But chances are good it won't cost the big bucks that a recently revamped home in the same neighborhood would, Vitali says.
If you want a newer, turnkey home, expect to pay more for that. Caveat: Even if a seller has done multiple upgrades, quality trumps quantity every time, Vitali says.
“If there’s been an addition to the house or some serious electrical work done in an unprofessional manner, that will reduce the sales price,” he says.
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