It’s nice to hear a house down the street sold for a lot of money. It does affect our home, along with other other factors. So what exactly is your home worth?

While only a professional can answer that question, there are some basic principles employed that you should understand.

First, real estate is a true market. A house or condo is worth what someone is willing to pay for it. An appraiser may value it at $400,000, but it’s still possible the only offer you get is $375,000. We may all purchase vegetables several times a month, but how often do you buy a house?

The concept of substitution rules. Basically, if a similar home is also available, the buyer will generally take the lower-priced option. Various factors add or subtract from the price of a house. A three-car garage will usually be valued above a two-car, and a bigger back yard or updated kitchen is more appealing. Few people, however, will pay fifty thousand more for a swimming pool they could put in themselves for just twenty on the lot next door.

Location, location, location. There are areas that are more desirable than others. The homes around the beautiful lake with the gorgeous trees, large lots and low crime rates attract higher prices than other places. Few people, on the other hand, want to be next to a loud factory with peculiar smells. But not every location is quite so clear cut. Some prefer a quiet country home while others like a smaller place in the midst of an urban oasis of restaurants and nightlife.

Finally, the area itself affects not just the price, but the value of its features. If a neighborhood has smaller homes – say 1800 square feet or less – with 3 bedrooms and 2 baths, then finding one home with five bedrooms may not actually increase its price. People tend to seek 3 bedrooms in that community – and carving the space into 5 may turn away more buyers than it attracts.

Ultimately, a seller can insist on a high price and stick with it. But a buyer is free to seek other properties.

So how can you set a reasonable sales price on your home?

An appraisal can only be done by a certified appraiser. When you go for a mortgage, the bank will usually get an appraisal to be sure their investment is covered. These are not inexpensive.

While a realtor doesn’t do appraisals, he/she can do a CMA, a Comparative Market Analysis. This is comparing recent sales of similar homes in the same area, and brings objectivity into what can be an emotional decision. If your house is exactly the same as your neighbor’s across the street, and his sold at $400,000 two weeks ago, the price you can expect is probably similar.

Unless, of course, your lot is three times the size with killer views of Mount Hood.