Determining Your
Purchase Price
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.
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 if 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.
Most of the
public is aware that the Multiple
Listing Service is a private resource where Realtors list properties
available for sale.
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.
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.
Conclusions
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.
Dallas-Fort
Worth, Texas comparable home sales information can be obtained by
completing our online form.
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