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Setting a Value on a Home

Two of the most frequent questions we receive from potential home buyers are "how much should I offer for a house?" and "What is the normal concession from the selling price?" There are, unfortunately, no stock answers to those questions. Unlike the automobile business (one of the other major purchases where prices are negotiable) Real Estate does not have an established selling price nor a specific cost. There is no MSRP (Manufacturer's Suggested Retail Price) nor an Invoice cost for a house. Therefore, it is impossible to give "standards" as to what is either fair or normal. Every property stands on its own price and merits.

For example, it is not uncommon to have two very similar properties in the same neighborhood with two different prices. This may be due to differences in the condition of the homes, or amenities or the motivations (and perception of value) of the seller. The following table is a simplified example of what you may find in a given area. The neighborhood average is for homes that have SOLD and CLOSED in the prior 6 months to one year. Although there are some minor variations in size and age between Property A and Property B, we'll assume that they are in similar condition and have basically the same amenities.

Neighborhood Average

Property A

Property B

Square Footage: 1855 Square Footage: 1790 Square Footage: 1875
Number of Bedrooms: 3 Number of Bedrooms: 3 Number of Bedrooms: 3
Number of Bathrooms: 2 Number of Bathrooms: 2 Number of Bathrooms: 2
Age: 14 Age: 15 Age: 13
Sold Price: $137,850 List Price: $136,950 List Price: $145,000

Why then the $8050 difference in list price? Perhaps the seller of Property A has been relocated to another city and needs a quick sale (and is "motivated") while Property B's seller is simply "testing the water" (and has no motivation for selling). Maybe the seller of Property B simply has an inflated view of what their home is worth. For the buyer, though, it is imperative to be aware of the true facts (rather than speculation) since it would be easy to pay too much for Property B if they simply used the misconception of "you should take 2 or 3% off any selling price." With that scenario, the buyer would still pay too much for Property B ($140,650 - $142,100 with a neighborhood average of $137,850) and runs the risk of losing Property A, which is already priced UNDER the neighborhood average.

Obtaining Property Values

The simplest method of gaining knowledge about property values is from your Agent. If you are being represented by a Buyer's Agent, the Agent can develop a Comparable Market Analysis for homes in the area in which you are interested. This will give you valuable information you will need before you make an offer. If you are planning to buy a home without the assistance of an Agent (or, if you are looking for preliminary information) there are sources of information available online.


Using Property Value Information

One of the most important uses of property value information is as a basis for an offer on a home, but it is just as important as a guide in negotiation. For example, there is nothing wrong with making an offer below the listing price (even if the listing price is in range of the neighborhood average) but to lock-in on a low price that is considerably below the average may mean disappointment if you have found an ideal home. In addition, it is important to remember that other buyers may have access to the same information that you do--meaning that if a home is well priced and within the neighborhood averages, there is always the possibility that a competing--and higher--offer will result in a contract for the other buyer. Until the seller has accepted an offer in writing, and the buyer notified, the seller is free to consider offers from other potential buyers.

An additional use of property value information is to highlight--or eliminate--certain neighborhoods. If your budget limits you to $150,000, for example, it really makes no sense concentrating on (and perhaps falling in love with) a neighborhood where the average sale prices are in the $185,000 range. It is far better to focus on those areas where the average sale prices are well within your budget limitations, looking for a neighborhood that will give you the best value for your money.

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RELATED TOPICS

Comparable Market Analysis

CMA Example

Buyer Agents

Offers and Contracts

 
 
 
 
 
 
 

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