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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
additional data, such as the condition of the
home, improvements made to the property, current
market conditions, and the circumstances of the
seller. This will help you settle on a price you
think would be fair to pay for the home. Finally,
depending on your negotiating style, you adjust
your "fair" price and come up with what
you want to put in your offer.
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 that are similar in square
footage, number of bedrooms and bathrooms, garage
space, lot size, and type of construction.
If
the home you are interested in is part of a tract
of homes, 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 are easily accessed
by a real estate agent. 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.
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. In most circumstances,
this deed is recorded at the local county
recorder’s office. 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
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.
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. This information
is only available to real estate agents who are
members of the local Multiple Listing Service.
Your
agent will provide you with this data to help
determine your offer price.
Comparable Sales – Pending
Transactions
The
most valuable information would be 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 a property is sold, it
becomes a "pending sale" and all pricing
information is removed from the listing. 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,
if a Realtor has a reason to know the sales price,
they can usually find out through professional
courtesy. Also, some real estate brokerages post
sales information on a transaction board in their
office.
Other Factors Influencing
Your Offer Price
Gathering
and analyzing information from comparable sales
helps to establish the range of prices you should
consider when making an offer to buy a home. More
weight should be given to the most recent sales,
but even so, you need to do a bit more analysis
before setting upon the price you will offer. That
is because you also need to consider the condition
of the property, improvements, the current market,
and the circumstances behind the seller’s
decision to sell.
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