Buyer's Tools
Determining Your Offer Price
Making The Offer
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. As a New York State Certified Residential Real Estate Appraiser, Gary Herbst will help you make an informed decision about the appropriate offer price.
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.
Assessing the Seller's Motivation
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 reduce his price below what other similar type homes are listed for. Sometimes the savings can be significant.
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 drastic reduction in price. Sometimes, however, the seller is very motivated to sell quickly and at a notable discount. Do not be influenced by a seemingly high asking price in determining what your initial offer will be.
There are times when a seller is truly distressed, willing to make a quick sale below fair market value and sacrifice many 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 fliers sent to other real estate offices. Provided this information has been made generally available to Realtors, Buyer's Edge Realty will know when a seller is truly motivated and when it is just "puff" designed to elicit interest in a property.
The exception is when an agent is selling a home they have listed themselves, or is 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 - an obvious conflict of interest. In such a situation, they cannot legally provide you with negotiating information that would give you an advantage over the seller. You are on your own to negotiate price and terms.
Assessing the Seller's Motivation
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 reduce his price below what other similar type homes are listed for. Sometimes the savings can be significant.
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 drastic reduction in price. Sometimes, however, the seller is very motivated to sell quickly and at a notable discount. Do not be influenced by a seemingly high asking price in determining what your initial offer will be.
There are times when a seller is truly distressed, willing to make a quick sale below fair market value and sacrifice many 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 fliers sent to other real estate offices. Provided this information has been made generally available to Realtors, Buyer's Edge Realty will know when a seller is truly motivated and when it is just "puff" designed to elicit interest in a property.
The exception is when an agent is selling a home they have listed themselves, or is 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 - an obvious conflict of interest. In such a situation, they cannot legally provide you with negotiating information that would give you an advantage over the seller. You are on your own to negotiate price and terms.
Considering Market Conditions
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 buyers 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.
Evaluating Property Conditions
Since you have toured the property you are interested in, you should know how it compares to the neighborhood and general area in which the property is located. Location is the single most important factor that influences property prices. A useful approach is to 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 foundation, footings, framing, and drainage. Then consider the age, adequacy, and condition of the heating and air conditioning, plumbing, electrical, roof, ventilation, and appliances. Pay special attention to kitchen cabinets, countertops, layout, bathroom fixtures, and flooring. Note the general condition, location, and number of light switches and receptacles. Is the main electrical panel protected by circuit breakers or fuses? Is the amperage rating sufficient for modern usage? The front and back yards should be in reasonably good shape. Other factors which are important to consider include floorplan, room size, adequacy of closets/storage, and overall style and size of home in relation to other homes in the neighborhood. Be aware of any functional or locational drawbacks or concerns. These are just some of the many items which Buyer's Edge agents investigate, analyze, and report to our clients.
The missing ingredient will be information on the condition of the homes from your comparable sales list. Agents from Buyer's Edge Realty may have actually visited some of those homes and be able to provide key insights.
Home Improvements
Even when comparing exact model matches within a subdivision, you should note whether the previous owners have made any substantial improvements. Major improvements should be taken into account. Most important would be room additions or kitchen and bathroom remodeling. Are these legal additions and improvements where necessary documents from the municipality have been issued? Other items, like expensive custom woodwork or swimming pools should be taken into account, too, but should be discounted. A pool that costs $50,000 to install does not normally add $50,000 in value to the home, but rather a fractional return of its cost in actual contribution to market value. Buyer's Edge Realty will give you guidance in this area and many others.
Analyzing Comparable Sales
The first step in determining the price you are willing to offer is to look at the recent sales of similar homes. These are called "comparable sales." Comparable sales are recent sales of homes that compare closely to the one you are looking to purchase. Specifically, you want to compare prices of homes in your area that are similar in square footage, number of bedrooms and bathrooms, other amenities (e.g.: fireplaces, central A/C, finished basements, etc.), garage space, lot size, type of construction, condition, upgrades, etc.
If the home you are interested is part of a development, then you will most likely find some exact model matches to compare against one another. There are three main sources of information on comparable sales, all of which Buyer's Edge Realty has access to. It is somewhat more difficult for the general public to access this data, and in some cases impossible. Two of the most obvious information sources are the public record and the Multiple Listing Service.
Determining your offer price is a three-step process. First, you look at recent sales of similar properties to come up with a price range. Then, you analyze the condition of the home and home improvements made to the property. It is important to consider current market conditions and the circumstances of the seller, if you can get the information. A motivated seller is likely to be more flexible during the negotiating process.
Comparable Sales in the Public Record
The most accessible source of information on comparable sales is the public record. When someone buys a home the property is deeded from the seller to the buyer; the deed is recorded at the Tarrytown recorder's office in White Plains. They combine sales data with information already known about the property so they can assess property taxes correctly.
Provided there have been no additions to the property, the information available from the public record is usually correct regarding sales price, square footage and numbers of rooms. This makes it easy to use the public record as a source of data for comparable sale information.
Accessing the data is another matter, at least for the general public. Realtors can generally look up this information through title insurance companies. The title companies either compile the data directly from the county recorder's office or purchase it from other companies. One problem with the public record is that it tends to run at least six to eight weeks behind. Add another four to six weeks for the typical escrow period and you can see the data is not current. The most current information is the most valuable.
Comparable Sales in the Multiple Listing Service (MLS)
Most of the public is aware that the Multiple Listing Service is a private resource where Realtors list properties available for sale. Recently, the public has been able to access some of that information on such sites as Realtor.com, MSN HomeAdvisor, and others. Buyer's Edge Realty offers buyers online access to all properties listed with the Westchester Multiple Listing Service.
Once a property is sold and the transaction has closed, the selling price is posted to the listing in the Multiple Listing Service. Over time, it has become a huge database on past sales, containing much more information on individual homes than can be gleaned from the public record. Buyer's Edge Realty will provide you with access to this data to help determine your offer.
Comparable Sales - Pending Transactions
The most valuable information is the most current, of course. A sale last week has more validity in helping you determine a purchase price than a sale from six months ago. The problem is that there is no actual record of the sales price until the transaction is completed. The information is not available in the public record because no deed has yet been recorded.
Neither is the information available in the Multiple Listing Service. Once contractual contingencies have been satisfied and a mortgage commitment issued, it becomes a "pending sale". Actual selling prices are not posted until it becomes a "closed sale." This protects the seller in case the transaction falls apart and the property is placed back on the market. It would give an unfair advantage to future potential buyers if they already knew what price the seller had been willing to accept in the past. However, Buyer's Edge Realty is sometimes able to learn the sales price for pending transactions through professional courtesy.
Determining Your Offer Price
The Pricing Process
When you prepare an offer to purchase a home, you already know the seller's asking price. But what price are you going to offer and how do you come up with that figure?
Determining your offer price is a three-step process. First, you look at recent sales of similar properties to come up with a price range. Then, you analyze the condition of the home and home improvements made to the property. It is important to consider current market conditions and the circumstances of the seller, if you can get the information. A motivated seller is likely to be more flexible during the negotiating process.
These factors will help you settle on a price you believe would be fair to pay for the home. Buyer's Edge Realty will work with you to identify a "fair" price, based on these factors, and to negotiate the best possible deal.
