As a Massachusetts for-sale-by-owner service with years of experience helping first-time home sellers learn how to sell successfully on their own, we often ask new advertisers this question. "How did you determine your asking price?" The answer will guide us in helping the home seller start out on the best path to success. Typically, here is how the conversation goes:
FSBO EXPERT: How have you determined the price for your property?
SELLER: I had an agent come over and give me an appraisal. She gave me a "high" and a "low" and I went in between.
FSBO EXPERT: Did the agent leave you with the CMA (Comparable Market Analysis)?
SELLER: No, she showed it to me and gave me the numbers, but she took the report with her.
FSBO EXPERT: That's too bad, because you cannot analyze the data without knowing what she used for comps, whether they were valid (still not reflective of the entire market) and how recent they were.
SELLER: What do I do now?
FSBO EXPERT: Our recommendation is to hire an independent real estate appraiser and pay for a Uniform Report of Market Value.
There are two reasons why paying for a professional appraisal is recommended:
1) A licensed appraiser is independent and has no vested interest in swaying the results of the appraisal. Often the courts rely on appraisers to provide an evaluation of an estate due to death or divorce. The appraiser is licensed by the state according to the types of appraisals they are qualified to perform and must adhere to a strict formula when performing the appraisal. An appraiser only looks at sold properties and is not concerned with "wishful thinking". The data used combines not only MLS data, but also any homes sold "by owner" in your area that are similar.
2) Using an appraisal to establish your asking price will provide you with peace of mind. You will be able to negotiate with market-savvy buyer agents, armed with mountains of "on the market" data to justify their buyer's lower offer. You will also sleep soundly knowing that the accepted offer that will meet lender's requirements for your buyer.
Remember, a real estate agent's main objective is "getting the listing" at a sales meeting. While some agents work hard to provide comparable data based upon their years of experience in the business and the time spent locating quality data, the vast majority of agents understand this is their "ticket" to a new listing. The stakes are very high and it is best to avoid any secret agendas by using an agent's opinion of value. Here is how an agent's CMA (Comparable Market Analysis" is flawed.
1) Agents only use MLS listed property data. In some areas of the country, as much as 25-33% of homes are sold "by owner". If this data is not included, the results are skewed.
2) Agents advance their agency listings first. Often agents provide home sellers with 10 - 15 listing sheets to compare property prices. They lean heavily on providing listing sheets from their own agency, calling attention to their prowess at obtaining other listings, designed to help you look at " asking price" not "sold price" and rely upon their own agency's listings rather than data from their competitors. The name of the game is to keep 100% of the commission and not share it with outside agencies.
It's the GIGO theory - garbage in, garbage out. Your results are only as good as the data you've used.
If you have had a CMA, don't worry, but use it in conjunction with other data. Make sure the agent leaves it with you! Separate the "on the market" sheets from the "sold" data to pinpoint where the market is at. If the agent did not leave you with the report, call them back and ask for the entire report to be sent to you.
Now, obtain an appraisal and USE that appraisal to determine your asking price. In a seller's market you can pad the appraised value by as much as 5% or more. In a buyer's market, be careful. Your local market may show weakness in some areas that will depress your asking price to below Assessed Value. Do not pay as much attention to the assessed values a town may assign as the tax base is set to obtain a fair tax, and cannot keep up with sub-markets, etc.
Where do you go to obtain an appraisal?
Find a qualified residential appraiser by contacting your local for sale by owner service or local lenders. Expect to pay around $300 - $400 (Western Mass rates). Ask for any discounts available. If you have recently had your home appraised for a refinance, try calling the appraiser that the lender used and ask to pay for a "comparable update", assuming you have had no recent improvements since the appraiser did a walk-through. Note: This does not work for lenders who may use a "drive by" appraisal technique or utilize online AVM technology.
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