All home buyers have one thing in common: They don’t want to get ripped off. Whatever the state of the housing market, it’simportant to make sure you pay a fair price.
Yet how do you know that you’re getting a good deal—even in a tight market—before you make an offer? To make a sound investment decision, you need to know how to evaluate any home. The following 10 tips will show you how to get a great deal.
Key Takeaways
- When shopping for a home, it’s important to get a sense of the market by looking at recently sold homes, comparable homes on the market and available for viewing, and comparables taken off the market because they didn’t sell.
- You should also try to determine whether you are in a buyer’s or seller’s market and if the neighborhood is appreciating or depreciating in desirability.
- Be sure to pay attention to your real estate agent’s advice on price.
- Be prepared to negotiate rather than just accepting the seller’s asking price.
Price Break!
The standard 6% commission paid by home sellers in the U.S. is disappearing under a pending settlement by the National Association of Realtors of a long-standing court case. Home sellers should see lower commissions based on the March 2024 settlement agreement. The plaintiffs argued that the practice of splitting commission between the seller’s broker and the buyer’s agent was illegal collusion. New rules should be in place by mid-July 2024.
1. Check Recent Sale Prices
A comparable property is similar in size, condition, neighborhood, and amenities to the one you’re considering buying. One 1,200-square-foot, recently remodeled, one-story home with an attached garage should be listed at roughly the same price as a similar 1,200-square-foot home in the same neighborhood.
That said, you can gain valuable information by looking at how the property you’re interested in compares in price with houses that are different from it. Is it considerably less expensive than larger or nicer properties? Is it more expensive than smaller or less attractive houses?
Your real estate agent is the best source of accurate, up-to-date information on comparable properties, also known as “comps” or “comparables”. You can also look at comparables that are currently in escrow, meaning that the property has a buyer, but the sale has not yet been completed.
2. Check Out Comparable Properties
If you can, visit other homes to get a tactile sense of how their size, condition, and amenities compare with the property you’re considering. You can then compare prices and see what seems fair.
Reasonable sellers know that they must price their properties similarly to market comparables if they want to be competitive.
3. Look at Unsold Comparables
If the house you’re considering has about the same price as homesthat have been taken off the market because they didn’t sell, the house in question may be overpriced.
Or, if there are many similar properties on the market, prices should be lower, especially if those properties are vacant.
Check out the unsold inventory index for information about current supply and demand in the housing market. This index attempts to measure how long it will take for all the homes currently on the market to be sold, given the rate at which homes are currently selling.
4. Consider Current Market Conditions
Have prices been going up or down recently? In a seller’s market properties will likely be somewhat overpriced, and in a buyer’s market, they are apt to be underpriced. It depends on where the market currently sits on the real estate boom-and-bust cycle.
Even in a seller’s market, properties may not be overpriced if the market is on the upswing and not near its peak. They can be overpriced even in a buyer’s market if prices have only recently begun to decline. Of course, it can be difficult to see the peaks and valleys until they’re history.
Also, consider the impact of mortgage interest rates and the job market on your local economy. High mortgage rates and high unemployment both suppress home prices.
Be skeptical of for-sale-by-owner (FSBO) properties as they are likely to be overpriced by their excessively emotional sellers.
5. Be Wary of for-Sale-by-Owner Properties
A for-sale-by-owner (FSBO) property should be discounted to reflect the fact that there is no 2.5% to 3% (on average) seller’s agent’s commission, something that many sellers don’t take into consideration when deciding how to set a price for a house.
Another potential problem is that the seller has not had an agent’s guidance in setting a reasonable price in the first place, or may have been so unhappy with that guidance that they've decided to go it alone.
In any of these situations, the property may be overpriced.
6. Consider Potential Appreciation
The future prospects of your chosen neighborhood can have an impact on today's home prices. If positive development is planned, such as an extension of light rail to the neighborhood or a big company moving to town, the prospects for future home appreciation look good. Even small developments, such asplans to add more roads or build a new school, can be a good sign.
If grocery stores and gas stations are closing down, the home price should be lower to reflect the bad news. You might even reconsider moving to the area.
The development of new housing can go either way.It can mean that the area is hot and likely to be in high demand in the future, thus increasing your home’s value, or it can create a surplus of housing, which will lower the value of existing homes.
The Fair Housing Act prohibits discrimination in housing and rentals due to race, color, national origin, religion, sex, familial status, and disability. If you feel that you are being discriminated against in your search for a home, report it promptly to the U.S. Department of Housing and Urban Development.
7. Ask Your Real Estate Agent
Your real estate agent should have a good gut sense of the appropriate price for the property and what a fair offering price would be.
8. Ask Yourself: Does the Price Feel Fair?
If you’re not happy with the property, the price will never seem fair, even if you get a bargain.
If you pay a little over market value for a home you love, you won’t really care in the end.
9. Test the Waters
You can always make an offer below list price just to see how the seller reacts. Some sellers list properties for the lowest price they’re willing to take because they don’t want to negotiate. Others list their homes for higher than they expect to get because they expect to negotiate or they want to see if someone will make an offer at the higher price.
Some sellers underprice their properties in the hope of generating interest and sparking a bidding war. Unlike on eBay, the seller doesn’t have to sell to the highest bidder. A seller can reject any and all offers that don’t meet their expectations.
If you have your heart set on the property, be warned that some sellers are offended by lowball offers and mayrefuse to work with you. Also, when you offer less than the list price, you increase your risk of being outbid by another buyer.
10. Get an Appraisal and an Inspection
Once you’re under contract, the lender will have an appraisal of the property done (typically at your expense) to protect its financial interests.
If the appraisal comes in at considerably less than your offering price, you may not be getting a fair deal. In fact, the lender may not even let you purchase the home unless the seller is willing to lower the price.
A home inspection, also completed after you’re under contract, will give you another way to gauge your offering price. If the home needs many expensive repairs, you’ll want to ask the seller to either make the repairs for you or discount the purchase price so you can make them yourself.
How Do I Set a Price for My Home?
When it comes to deciding how to set the correct price for a home, the same logic works for a seller as for a buyer. Check comparable prices for recent sales in your neighborhood. Consider the state of your local economy and its prospects for the near future. Get a professional appraisal. Ask a real estate professional for an honest opinion.
How Can I Improve My Chances in a Hot Housing Market?
When attractive houses are selling fast in a hot market, the buyer with the best chance is the one waving an all-cash offer. If you're not that flush, consider getting a mortgage pre-approval from the lender of your choice. The pre-approval signifies that you're willing and able to make a deal for a home. It also gets some of the paperwork out of the way, getting you closer to a move-in date.
Is a Home's Listed Price Always Negotiable?
A home's price should be negotiable, given that it's called an "asking" price. If you think a lower price is reasonable, make a counter offer. Your counter-offer should be based on your realistic analysis of the home's value, based on its size, condition, amenities, and location. Consider getting professional input from a real estate agent, an appraiser, or both.
The Bottom Line
When you’re shopping for a home, it’s important to understand how housing is priced, so you can make a sound investment and reach a fair agreement with the seller. Using these tips, you’ll be able to make a confident and well-informed offer on any home in any market.
