by Jon Silver
Most homebuyers share at least one common trait: They don't want to pay more for their home than they have to. Given that prices generally are rising throughout the US, it is important to get a fair price.
Right now, this can be challenging because there were more houses sold in 2015 – 5.26 million – than any year since 2006, when 6.48 million were sold. Another sign of the housing surge is that the number of mortgage loan applications increase 8.8% in January 2016 compared to a year before.
So how to make sure you are getting a good deal even in a hot market? Below is how to evaluate the price of any home you are considering so you can make a good buying decision:
You want to research comparable homes that sold in the last few months. A comparable home is one that has similar size, condition, neighborhood and features as the one you are considering. For example, a 1500 square foot home that was recently remodeled with a one car garage should have roughly the same price as another home like it in the same area.
Still, you can gain great insights by comparing how the property you are considering compares price wise to other properties. Is it less expensive than larger homes? Is it more expensive than homes that are smaller and less attractive?
Your real estate agent is the ideal source of accurate information on comparable properties, or comps.
#2 Check Homes on the Market
You can visit other houses that are on the market and get a feel for their condition, size and features, and compare it to your property. Then, compare prices and see if the asking price on yours is fair. Sellers who want to sell their homes quickly understand that they have to price homes similarly to the comps.
#3 Check Homes That Didn't Sell
If the house you want is priced like homes that were taken off the market because they didn't move, the home may be too expensive. Also, if there are many similar homes on the market, prices should be lower. This is especially the case if those homes are empty.
It is a good idea to check the unsold inventory index to see what the current supply and demand is for homes in your area. This index gives you an idea of how long it will take for all homes being marketed to sell.
#4 Think About Market Conditions and Appreciation
Did prices in your area go up or down lately? If it is a seller's market, properties may be overpriced. In a buyer's market, properties may be underpriced. It just depends upon where the local market is in the boom and bust real estate curve at this particular time.
Even with a seller's market, properties may not be too expensive if the market is on the way up and has not peaked. On the other hand, properties may be over priced in a buyer's market if prices only started to drop lately.
Naturally, it can be tough to view the highs and lows of the market until they are in the past. You also should think about the effect of mortgage interest rates on both the job market and the economy.
#5 Buying FSBO?
If you are buying a For Sale by Owner (FSBO) property, the price should be discounted to reflect that there is no 6% commission. Many sellers do not factor this in when they set their price. Another issue with FSBOs is that the seller probably did not receive the guidance of a real estate agent to set a fair price. The property could cost too much. First time home buyers need to make an extra strong offer to be taken seriously.
#6 Appreciation in the Area
What the future appreciation may be in your neighborhood can affect the price. If development that is positive is planned in the future, such as a major store or shopping mall being constructed, there may be a prospect of better appreciation for your home. Even a small development such as a new road being added can be good for appreciation.
On the other hand, if stores are closing in that area, this could be a sign that the area is on the downswing and that should be reflected in the price.
#7 Ask Your Agent
Your real estate agent should have an idea if the property has been priced reasonably or not. He or she should be able to offer guidance on a fair offering price.
#8 Try Testing the Waters
Even with a seller's market, you may want to offer under the list price to see what the seller says. Some sellers may list their home for the lowest price they want to take because they do not want to haggle at all. Others may list the home for much higher than they expect to get because they want to negotiate. They also may list it higher because they want to see if someone will offer the higher price.
However, note that if you really want the house, some sellers can be offended by a low offer and may not work with you. Also, in a high demand area, you could be outbid by another buyer and lose the deal.
The bottom line is when you are looking for a home, you must really understand how homes are priced so that you can make a fair offer to the seller. With these tips, you should be armed with plenty of good information to make a good offer on a home in your area.
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