November 29, 2020

How do I know if the price I’m asking for my house is right?


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Setting a sale price too low for a property means losing money. But listing a house for sale at too high a price can delay too much the time it takes to find a buyer, which in the long run often forces you to end up lowering the price. Ensuring that the amount that is asked for a house for sale is adequate is a fundamental decision to get the most out of the operation.

Multiple factors influence the sale price of a property. From its location, its characteristics and its status to the services offered by its location or the market situation. When setting a sale price, all variables must be taken into account, which can make the price go up or down. Of course, we cannot confuse the sale value of a home with its cadastral value, which has an administrative purpose and which is usually much lower than the market price.

A professional appraisal is the most accurate way to find out the right sale price for a property. But there are other methods to calculate the most accurate sale price that we can use to compare or we can use if we do not want to assume the expense of a professional appraisal.

Comparison with other homes in the area

Without a doubt, the first thing you usually think about when looking for a price for a house for sale is analyze the prices of other homes in the same area. After all, the location, both the town and the specific area in which it is located, is possibly the factor that most influences the valuation of a property.

For this we will have to compare with other similar homes not only in surface, characteristics and age, but also in terms of the reforms that have been carried out in the property, the common areas, if it has a garage and storage room or the expenses associated with the house, such as community expenses. As no two homes are the same, we will have to adjust the price based on each of these factors.

In addition, it is necessary to bear in mind that the price set by other sellers does not have to be the closest to reality, since it reflects only the offer, not the price that buyers are willing to pay. Sometimes the value of a property tends to be overvalued and it is common for bargaining to take place in the negotiation process, so these sales prices are usually inflated.

Valuation of a home according to the rental price

A common way to value the sale price of a home is to calculate it based on the price for which similar properties are rented, since there is usually a relationship between the sale and rental market prices. This valuation method takes into account two related indicators: the average rental profitability and what we know as PER (Price Earnings Ratio).

The average rental profitability It is the annual revenue that we obtain from a house that is rented in relation to the price it cost to acquire it. It is obtained by dividing the annual rent received for that lease by the price at which the property was purchased. In 2019 the average gross rental profitability in Spain was 5.46%, according to the real estate portal flats.com.

Conversely, if the purchase price of the property is divided by the annual rent, the PER, which indicates the number of years it would take to buy the home at the rental price. For the same gross return of 5.46%, the PER would be 18.3 years, or what is the same, 220 months.

If you know the rental prices of similar homes in an area, it would be enough to multiply that rental amount by the number of months reflected in the PER, which would result in the appropriate price in relation to the rental offer.

Professional valuation of the price of a home

Real estate professionals and appraisal companies can provide an accurate assessment of the recommended sales price for a home, since they know the current market and the factors that influence its sale value. If you opt for a professional assessment, there are several alternatives:

Resorting to the valuation of real estate agencies. You can access the valuations of real estate agencies, which they offer for free in order to attract customers. Sometimes these valuations are excessively high in order, precisely, to win customers, so it is advisable to compare between the sale prices recommended by various agencies.

Online appraisal tools. There are online calculators that offer the approximate sale price of a home, but in many cases the valuation is not exhaustive enough and different platforms can yield very different valuations for the same home.

Appraisal companies. The most accurate valuation that can be obtained is that offered by professional appraisers, who visit the property and take into account all the factors that influence the market price. It is the valuation that best fits reality, but the amount of an appraisal does not usually go below 300 euros.

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