Comparable
Sales and Your Offer Price
Determining
Your Offer Price
When you prepare
an offer to purchase a home, you already know the sellerÍs
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.
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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 recorderÍs 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 recorderÍs 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.
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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.
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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.
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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 sellerÍs decision to sell.
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