Buyer's Guide
Determining Your Offer 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.
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. Real Estate Professionals 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 Real Estate
Professionals 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 Real Estate Professional 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.
All articles © 2000
RealEstate ABC. No articles may be reprinted or
displayed without permission.
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