Since you have toured the
property you are interested in, you should know how it compares to the general
neighborhood. All you have to do is put the home in one of three categories -
average, above average, or below average.
When evaluating a home’s
condition, there are a number of things you should consider. Structural
condition is most important - items such as walls, ceilings, floors, doors and
windows. Then paint, carpets, and floor coverings. Pay special attention to
bathrooms and bedrooms and whether the plumbing and electricity work
efficiently. Look at the fixtures, such as light switches, doorknobs, and drawer
handles. The front and back yards should be in reasonably good shape.
The missing ingredient
will be information on the condition of the homes from your comparable sales
list. Provided you chose the right agent to represent you, they will have
actually visited most of those homes and be able to provide key insights.
How Home
Improvements Affect Your Offer Price
Even when comparing exact
model matches within a tract of homes, you should note whether the previous
owners have made any substantial improvements. Cosmetic changes should be
largely ignored, but major improvements should be taken into account. Most
important would be room additions, especially bedrooms and bathrooms. Other
items, like expensive floor tile or swimming pools should be taken into account,
too, but should be discounted. A pool that costs $20,000 to install does not
normally add $20,000 in value to the home. Rely on your agent to give you
guidance in this area.
How
Market Conditions Affect Your Offer Price
A hot market is a
"seller’s market." During a seller’s market, properties can sell
within a few days of being listed and there are often multiple offers. Sometimes
homes even sell above the asking price. Though most buyer’s want
to get a "deal" on a home, reducing your offer by even a few thousand
dollars could mean that someone else will get the home you desire.
A slow market is a
"buyer’s market. During a buyer’s market properties may languish on the
market for some time and offers may be few and far between. Prices may even
decline temporarily. Such a market would allow you to be more flexible in
offering a lower price for the home. Even if your offered price is too low, the
seller is likely to make some sort of counter-offer and you can begin
negotiations in earnest.
More often than not, the
market is simply "steady," or in transition. When a market is steady,
no real rules apply on whether you should make an offer on the high end of your
range or the low end. You could find yourself in a situation with multiple
offers on your desired house, or where no one has made an offer in weeks.
Transition markets are
more difficult to define. If the economy slows unexpectedly, as it did in the
early nineties, people who buy on the high end of a seller’s market (like the
late eighties) could find their home loses value for several years. So far, no
one has proven reliable in predicting when markets change or how good or bad the
real estate market will become.
How
Seller Motivation Affects Your Offer Price
Truthfully, it is rather
rare that a seller’s motivation will dramatically affect the price of a home,
but it is often possible to save a few thousand dollars. The most common
"motivated seller" is someone who has already bought his or her next
home or is relocating to a new area. They will be under the gun to sell the home
quickly or face the prospect of making two mortgage payments at the same time.
Since that can drain a bank account quickly, most sellers want to avoid such a
situation and may be willing to give up a few thousand dollars to avoid the
possibility.
There are also family
crises that can motivate a seller to make a quick deal. However, when you see a
real estate ad that mentions "divorce," "motivated seller,"
"relocation," or something to that affect, beware. Although the facts
may be true, that does not necessarily mean the seller is motivated to make a
quick and costly sale. Most likely, the ad is more designed to generate phone
calls and leads rather than sell the home.
However, there are times
when a seller is truly distressed, willing to make a quick sale and sacrifice
thousands of dollars. With the seller’s permission, the listing agent will
post this information along with the listing in the Multiple Listing Service.
They may also inform other agents during office and association marketing
sessions or by flyers sent to other real estate offices. Provided this
information has been made generally available to Realtors, your agent should
know when a seller is truly motivated and when it is just "puff"
designed to illicit interest in a property.
The exception is when an
agent is selling a home they have listed themselves or selling a home that was
listed by another agent from their own company. In such a situation, the agent
may be acting as an agent for the seller, or as a "dual agent,"
representing both you and the seller. In such a situation, they cannot legally
provide you with information that would give you an advantage over the seller.
The
Final Decision on Your Offer Price
Comparable sales
information helps you to determine a base price range for a particular home.
Adding in the various factors like property condition, improvements, market
conditions, and seller motivation help determine whether a "fair"
price would be at the upper limit of that range or the lower limit. Perhaps you
will feel a fair price is outside of that price range.
The "fair" price
should be approximately what you are willing to agree on at the end of
negotiations with the seller. The price you put in your offer to begin negotiations is totally up to you and depends on your negotiating style. Most
buyers start off somewhat lower than the price they eventually want to pay.
Although your agent may
provide advice and guidance, you are the one who makes the decision. The price
you put in the offer is totally up to you.
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