When you’re buying a home, even in a tight market, you want to make sure you’re getting a good deal. Here’s how you can evaluate the price of a home to ensure you’re making a sound investment.
Research Comparable, Recently Sold Properties
A comparable home is not just one that is similar in size, it should also be in the same neighborhood, in the same condition and have similar amenities. If you have a 1,200 square-feet, one-storey, recently remodeled home with an attached garage, a similar 1,200 square-feet home in the same neighborhood should list at approximately the same price.
Looking at how properties you’re interested in compare to others in price can help you gain some valuable information. Would this property be less expensive than a nicer or larger property? Will it be more expensive than a less attractive or smaller property?
Your real estate agent is a good source of up-to-date, accurate information on “comps” or comparable properties in the neighborhoods you’re interested in. You can also look at properties that are currently in escrow. A property in escrow is one that has a buyer, but the sale has not been completed.
Look At Comparable Properties Currently On the Market
If a comparable property is currently on the market, then you have the opportunity to visit the home and get a sense of the home’s condition, amenities, and size. You can then compare it to the property you’re considering.
You can compare prices to determine if the price you’re offering is fair. A reasonable seller will price their property based on similar market comparable properties, especially if they want to be competitive.
Look for Comparable Properties That Didn’t Sell and Were Recently On the Market
The property you’re considering may be overpriced if the comparable properties that are similar in price did not sell and were taken off the market. The number of similar properties on the market may cause a seller to lower the price, especially for a vacant property.
Look at the unsold inventory index. This will provide information about the supply and demand in the current housing market. This index tries to measure how long it will take for a home that is currently on the market to be sold based on the rate which current homes are selling in that market.
Consider the Appreciation Rates and Market Conditions in the Area
Have home prices gone up or down recently? If it’s a seller’s market, then the property may be somewhat overpriced. However, in a buyer’s market, the property may be underpriced. The price often depends on where the market sits.
In a seller’s market, a property may not be overpriced if the market is not near its peak or is on the upswing. Also, a property can be overpriced in a buyer’s market if the prices have only started to decline. Unfortunately, it can be difficult to determine a market’s valleys and peaks until after they are history.
You should also consider the impact of the job market and mortgage interest rates on the economy. Knowing your mortgage options is important in making the right decision. For more information about mortgages check out 4 Steps to Attaining a Mortgage.
Are You Considering a For-Sale-By-Owner Property?
For-sale-by-owner properties should be discounted. The seller does not have to pay the seller agent’s commission which is on average 6%. This is something many sellers don’t take into consideration when they set their price.
A potential problem you may encounter with a FSBO property is that the seller does not have the guidance of a real estate agent when setting their price. Or, sometimes the seller is not happy with the price suggested by the agent and decide they will sell their home on their own. In these situations, the home may be overpriced.