Don't Overlook These Factors When Pricing a Home

Written by
Kirk Haverkamp
Read Time: 4 minutes

One of the biggest challenges in buying a home is knowing what is a good price for a particular property. Individual homes and the neighborhoods around them vary so much it can be hard for a buyer to determine what a fair price would be.

When it comes to pricing a home, comparable sales have always been the gold standard - that is, recent sales prices of similar properties in the same general area. But even these have their limits - two homes may be of the same general size, age, number of rooms and in apparently similar neighborhoods, but there may still be significant differences between them.

While you still want to use comparable sales as your starting point, here are a few of the less-obvious things to take into consideration when pricing a home you're considering.

What are current local market trends?

Is this a neighborhood or community on the rise? Have prices been trending upward the past year or are they holding steady or even declining? How quickly are homes selling once they're listed?

Rising prices and homes that sell almost as soon as they are listed are a sign of a hot market and/or a neighborhood in strong demand. You won't have as much leverage in price negotiation here and may even have to pay more than the asking price in order to outbid other interested parties. On the other hand, if homes are taking several weeks to a few months to sell, you've probably got more room to haggle.

How fast did your comps sell?

This is related to the section above but with a small twist: how long are individual homes staying on the market? If a home in your target neighborhood sells very quickly after being listed, chances are the asking price was an attractive one (though the actual sales price may not be available until the sale is recorded).

On the other hand, a home that stays on the market for several months is likely either overpriced or has certain issues that prevent it from selling (you might tour the home to see if what sort of shape it's in). Take that into account when considering asking and sales prices of comps in the area you're looking at.

In this case, you're trying to get a sense of the pricing of individual homes, rather than the general market conditions in the preceding section.

Are the neighborhoods truly comparable?

Sometimes, home values can change significantly just by crossing a street. Maybe you're crossing a boundary from one school district into another. Perhaps one side of the street has municipal water and sewage, while the other marks the start of the rural zone on wells and septic systems.

If you're looking at home prices in neighborhoods that seem similar but are separated by a small distance, look at what's around them. Is one adjacent to a highway? Is there light industry nearby? What are the crime rates? On the positive side, are there parks or schools nearby, or public lands off-limits to development?

What does the future hold?

Something many people fail to take into account when buying a home is their community's master plan. This is the blueprint for how the community expects to develop over the coming decades - and what sort of development is expected to go where.

This relates to zoning, which is another thing to be aware of. Even though a neighborhood is presently residential, that doesn't mean that's what the city or township envisions for that area long-term. You may find the property you're looking at is in a targeted mixed-use area, or adjacent to a planned commercial district or is eventually slated for commercial development itself. All of that will affect the present value of the property and could mean that the property you're looking at will be valued differently than an almost identical home a quarter mile away.

About automated pricing tools

One of the big changes in the real estate market in recent years has been the growing availability of online automated pricing tools available. These automatically compile data from home listings and sales nationwide and use computer algorithms to assess the results for individual communities and neighborhoods to produce estimated values for individual homes.

While this is convenient, the estimated values can often be off the mark by quite a bit. On the positive side, however, many of these will show actual sales prices from recent purchases and asking prices for homes recently listed, so it's a convenient way to get those figures, though listed homes may have already been sold.

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