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 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.
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.
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.
copyright
2000 by Terry Light and RealEstate ABC |
