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.
