The Buying Process
Finding a Home
Making an Offer
Finding a Loan
The Right Price
Getting to Settlement
Historic Real Estate
1st Time Homebuyers
Foreclosures & Short Sales
The Right Price
Before making an offer on a particular property, it is critically important to try to have an accurate estimate of what the price for that house really should be in today’s market. You need to be sure that you are not overpaying for the property even in a seller’s market where homes will frequently sell for more than the list price. Although you may expect to be in this house for many years, it is best to evaluate the house as though you’ll have to sell next month. At the same time, the house must appraise for the amount you’ll be paying, or there could be a problem with your loan. We’ll be negotiating on your behalf to get the best price and terms.
The first step we will take when you have found a house is to do a Comparative (or competitive) Market Analysis. Although similar to an appraisal, it is an estimate only. This CMA or Market Information is based on recently sold properties similar to the one for which you are making an offer. We look at the prices paid for the comparable properties and will adjust for amenities those other properties have, or don’t have, in comparison to the house you’re considering. For example, if the home you are considering has 3 full baths but a comparable house only has 2 full baths, the market value of the 3rd bath will be added to the sold price of the comparable house; if the comparable house has a much larger yard, the market value of the additional yard would be subtracted from the sold price of the comparable house.
Market value is literally the value of a particular feature in today’s market, not what it may have cost in the first place, or what it would cost to add it to an existing home. If you think of having two houses exactly the same, side by side, with exactly the same yard, and the only difference is that one of the houses has a whirlpool tub, how much more would most people pay for that whirlpool tub? How much more for a three-car garage instead of a two? That difference is market value. Making these adjustments to the prices paid for homes similar to the one you want to buy is the best way to compare apples-to-apples, in order to give you some assurance that the price you are paying isn’t unreasonable or will result in a bad deal for you.
Many factors other than the bathtubs or size of the garage will enter into your final decision of an offer price. Finding the right home is often an emotional decision; when you see that one right house, you’ll know it. It may be so much the right house that you end up paying more than you wanted to, but we will make very sure the decision you make is an informed one.
The seller has reasons for having priced the house the way it is, those reasons may or may not be reasonable and may not reflect the house’s true market value. The seller may have an unrealistic or overly-optimistic view of the house, or be thinking of its value in the past, or they may not care whether it sells this year or not. In some cases, the agent listing the house may have influenced an inflated price. On the other hand, the seller may need to sell today and may have priced the house accordingly. With all these factors contributing, the market analysis becomes your best guide — not only in knowing where to price the offer but also knowing when to walk away. There will usually be a contingency in the offer that will tie the purchase to a satisfactory appraisal, which will also give you additional protection on the price.
Another important consideration is that the final “right price” will be not only the price but also the terms and conditions on which the buyers and sellers agree. Being able to move quickly may be most important to the seller and therefore worth a lower price. At the end of the day, the price will be what the seller wants to sell for and what you want to pay. See the “Negotiating” section for some of the factors you need to consider when trying to establish that right price.