Editor's Note: This post was originally published in March 2013 and has been updated with the most recent information.
The first big decision a seller has to make is deciding on the price for their house. Given how many rules and regulations there are for appraising a house, you would think there is an exact science to this, but it still causes endless discussions between clients and agents.
Curbed talked to a variety of people in the business of figuring out how much houses are worth and culled the most common things they mentioned. Below, check out nine important facts worth keeping in mind.
1. Measuring square footage isn't as easy as it sounds.
There's total square feet then taxable living area which, simply put, is where people live. So it doesn't include things like a parking space or the condo's storage unit. That can be included in total square footage, which many buyers confuse for liveable square footage.
2. A major exception to taxable living area is the basement in single-family detached houses, rowhouses, and townhouses.
Anything that is below grade isn't something an appraiser will count as part of the living area. They may, however, make an "adjustment" of value accounting for the finished space. So a tricked out man cave wired for surround sound with mounts for three different flat screens—where some residents would probably spend most of their time—won't count as part of the taxable living area if it is below grade.
3. Another possible square footage pitfall for condos is storage space.
It might be advertised as large, but if it is only one of those half-heights cages, there are very few things it can hold. Boxes, yes. Mattresses or extra furniture, not so much. Outdoor space (e.g. terraces) and parking spaces are also not considered in calculating appraisal value, but the appraiser may make an adjustment in the price for such amenities.
4. When an appraiser is looking for comparable properties to determine a price, they are supposed to only look at sales within the last 90 days.
Now, if there aren't enough sales a lender might go back six to 12 months. But the ideal is 90 days. This can screw up the numbers for plenty of D.C. homes—especially in low inventory markets—since there aren't enough home sales every month of nearly identical houses to generate a critical mass of comparable listings. One frequent problem with the 90 day rule for D.C. houses is that two properties may be the same size, but were built in entirely different eras. So a drafty, creaky house built in 1900 will get compared to one built in 2010 with great insulation and triple-glazed windows.
5. Look at the numbers.
When looking at comparable sales to try to determine a list price for a house, ask the realtor to pull the numbers for the original list price and the final sales price for each of the comparisons you are using.
The more of the following numbers you know, the better position you are in to come up with a realistic price:
- Original list price
- List price (reflects price reductions while listed, if any)
- Sold price
- Net close price (accounts for any seller subsidy and represents what the seller actually walked away with)
6. Property type matters for multi-family buildings.
They can be garden style (one to four floors), mid-rise (five to eight floors) and high-rise (over eight floors). Units from different types of buildings can't usually be used as comparables. For example, a unit on the fifth floor of a five-floor building won't count as a comparable to a unit on the fourth floor of a four-floor building even if the units are the same size.
7. Let’s talk amenities.
One reason for the distinction between garden style, mid-rise, and high-rise is that generally speaking different types of buildings might come with different amenities. Just some of those might be fitness centers, business centers, residents lounges, roof decks, pools, parking garages, storage, loading docks, freight elevators and passenger elevators.
8. Amenities are the big unknown in appraisals since there are no hard and fast rules about what they are worth.
The amenities that come up the most when lamenting how ambiguous appraisal rules are include: pools, corner lots or end units, whether the building has an on-site maintenance crew, and if the appliances that come with the sale are truly high-end.
9. Many realtors recommend sellers get a pre-appraisal.
It costs several hundred dollars, but can be helpful to figure out a ballpark figure. Furthermore, when or if a buyer comes in with a lowball offer, you will have some documentation to justify a higher asking price.