Let’s jump right to the question that is almost always at the top of everyone’s list: What’s my place worth? Probably a better way to phrase the question would be “How much money will I get when it’s all said and done?” 

In the biz, this is known as Net Proceeds. We’ll get back to that in a moment, but first let’s talk about arriving at price.

When people start to think about selling their home, they typically begin with the end in mind. They want to know if they did a good job? Was buying this home a smart move or not? Was this place a good investment? How much has it gone up in value? 

Once you start to think about selling, all of the sudden you begin to notice real estate information everywhere. You see a sold strip on a house on the block and wonder how much they sold it for? You see an article in the newspaper, something in your social media feed, and hear a story about it on the radio. All of the sudden, Real Estate is everywhere. 

So you jump online and do a little research. Maybe you notice the news says Real Estate Prices have gone up 12% in the past two years. Typically, there is some data point that catches your imagination, then some back of a napkin math, and it’s off to the races.

Next, most people will go to Zillow and/or Redfin to get their automated valuation.

How do these websites generate a price if they’ve never been to your house? How do they know if you have made kitchen upgrades or if there’s been no improvements? Can we trust the number it spits out?

The answer is: it depends. 

It depends, because the quality of the information fed into the algorithm can produce wildly different results. I’ve seen the exact same home have valuations that are over $100,000 apart or more on different websites.

Real estate websites, brokerages, mortgage lenders and government agencies all have engineered their own complicated math formulas to arrive at an estimated value of properties. Each has its own specific motivation. 

The government’s value is a delicate dance about taxes. How does the electorate feel about paying taxes? Typically, this value is below market value for political reasons. On the other side of this coin are sites like Zillow. It’s in their best interest to nudge the prices higher. They are trying to get sellers and buyers to sign up to the site and then generate fees. In the end, what really matters is what a real person will pay for a piece of real property. That’s the actual real-world price. It’s a moving target.

All of these different entities will pull data from the Multiple Listing Service of sold properties, proximity to amenities, desirability of the location and so forth. The computer programmers will put a numerical weight on each of the data points they use and generate what they think is the value of your home. 

It’s not uncommon for the Zillow Zestimate to be off by 4-10%, sometimes even more. Obviously, that can represent tens of thousands of dollars depending on the pricepoint of the property.

Even though there are different ways to think about home values if you are dealing with taxes, assessments, or construction, for our purposes, we are concerned with what it would sell for on the open market.

Realtors begin the process of arriving at a price by comparing the subject home to other similar homes on the market. This is known as a comparative market analysis or CMA.

The goal of the CMA is to find the closest version of your home as close as possible to your home’s location, that sold the most recently. If you could find an exact duplicate of your house that was next door and sold yesterday, theoretically you’d have a really good starting point of what you place is worth. You have an indisputable data point. Someone actually paid this amount of money for this home on this date.

Sometimes this scenario exists. Many condos or houses in a building development have carbon copy homes very close to one another. If there are five homes virtually identical to yours that sold in the last three months, it’s fairly straight forward to figure out what a good price would be.

However, if you live in a neighborhood where every house is different and there isn’t anything that has sold in the last year, that home will be more difficult to put a number on.

So ideally, you would find some close comps that sold recently. The CMA will also include active listings and pending listings that are under contract, but haven’t closed yet.

If it’s possible to tour some of these listings and compare them to the subject home, that’s even better.

After all that, the realtor and client collaborate to land on what they think is a fair price.

The really interesting thing about price in a competitive real estate market like the one that exists in the Pacific Northwest is that the market will tell you what it thinks of the price you chose. 

If you live in a neighborhood where homes sell in an average of 11 days, and your listing has been sitting there for 90 days, you are overpriced (provided there’s not something materially defective about the home.)

Conversely, if you list your property, and a bidding war erupts with multiple offers, then you may be under priced. We’ll explore some of these strategies later, but at its most basic, this is a solid way to think about price and market forces.

In closing, let’s touch on Net Proceeds for a moment. Selling your home doesn’t necessarily mean you’ll be depositing a big check in your account. It is possible to be upside down on your home. 

Net proceeds is your take home money after paying off your mortgage, taxes, fees and commissions. We have net proceeds spreadsheets that can get us really close to what that number will be.

With all that said, there’s more to selling than just price. The psychology of money is an important topic to look at. We’ll discuss that next.

Ron Upshaw is a Licensed Agent at
Windermere Real Estate Midtown
1920 North 34th Street
Seattle, WA 98103

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