5 factors to consider when setting list price for your home
The list price is the price you offer your home for sale when you first put it on the market. It’s the dollar figure on your listing the first day it hits the real estate industry’s Multiple Listing Service (MLS) and is available to buyers.
It’s not the price you might eventually sell for, nor is it the tax assessed value. It’s the final price that you and your agent land on after considering the following factors: location, comparable sales, condition, improvements, and local market conditions.
1. Your home’s location
Can you walk to a top-rated elementary school? Is crime in your area low, and do you have easy access to public transportation? Factors like these can have a big impact on your home’s value.
Beyond your neighborhood, where you live in that neighborhood matters. Toll explains that, “Location also factors into: are they on a busy corner, on a double yellow line road, or in a neighborhood with the best plot?”
Location also plays a role in determining which comparable sales — also called comps — your agent will pull. Toll says that, “When we’re analyzing a listing price for a home, we look at properties that are in a similar location, within a half mile to a mile radius.”
2. The prices of recently sold homes
When you first meet with your agent, they’ll likely bring a comparative market analysis (CMA). This document analyzes recently closed sales in your market and compares them to your home to determine a listing price. Even if you think your home is worth more, pay attention to this data.
When you accept an offer, and the buyer’s mortgage lender has your home appraised, they’ll typically use these comparable sales, too.
“We look for sales that have occurred most recently, proximate and similar to the home that you have,” says Tom Cullen, a licensed and certified real estate appraiser with over 30 years of experience.
If you receive and accept an offer that’s much higher than comparable sales, your home might not appraise accordingly. If the buyer can’t get a mortgage on the house, they could back out of the sale.
3. House condition
Is your home well maintained or a fixer-upper?
“Is it something that has been completely renovated from top to bottom, or is it still in the original condition that the sellers purchased the home in 20 years ago?” asks Toll. An updated home in top condition will fetch more on the market than a home with a bathroom from the 1970s because the buyers won’t have to factor in any remodeling costs.
According to Toll, “Buyers are very knowledgeable when they’re looking at a property. When they walk through, they know that if they’re updating a kitchen, it’s going to cost between $40,000 to $60,000.”
Your home’s condition has a major impact on its value. It’s still possible to sell a home that needs some work, but you have to factor that in when deciding how much to list your house for.
If you’re selling a house with significant issues that you do not want to repair or update, consider listing it as is. Your agent can provide the pros and cons of an as is sale.
Appraisers also look at your home’s condition, age, and needed repairs when determining its value. They will make the same calculations as a buyer when adding in a remodeled kitchen or subtracting value for an outdated bathroom.
4. Home improvements and updates
If you’ve added square footage, remodeled the kitchen, and updated the bathrooms, you can add that to your home’s value. But don’t think that if you paid $45,000 for a new kitchen, you can just tack that onto the list price. Some renovations and remodeling projects will have a higher return on investment than others.
In its 2022 Remodeling Impact Report, the National Association of Realtors® (NAR) found that the majority of interior remodeling projects that buyers want only offer a return of between 56-147% (though most projects return less than 100%). The projects that return the most value — adding new wood flooring returns 118% versus a kitchen upgrade at 67% — aren’t necessarily what you’d think. Your agent will know what buyers in your market currently value and which of your updates increase the list price.
5. Market conditions in your area
Depending on the market you’re selling in, your agent may advise a different listing price strategy. There are three types of real estate markets: a buyer’s market, a seller’s market, and a neutral market.
In a buyer’s market, there are more homes on the market relative to buyers. Sellers might have to drop their listing price to attract interest. It’s more common to have to make concessions, such as paying part of closing costs, to get the deal done.
It’s the opposite in a seller’s market — there are more buyers than homes. Bidding wars, buyers who waive contingencies, and homes that go quickly and for higher than list price are common.
In a neutral market, the supply of houses is balanced with the buyer demand. Homes in this scenario tend to sell within a few months and close to the list price.
