Assessing the value of a home that you’re interested in buying will require you to answer the following questions:
- Does the house measure up to the standards of surrounding properties? Compare the property you want to buy with the homes that have been sold recently.
- How much do you value the home based on advertised or published features?
Looking at 'comps'
The buyer needs to know how to determine if the seller is trying to pull an arbitrage in order to draw profits up before making an offer. This is crucial especially in the event where the lender appoints an appraiser to know if the loan you’re after matches the home’s worth. It’s best to look for online resources on recent sales of identical homes in the area. Have a printed copy of the comparable (or “comps”) because they may come handy anytime you need to check on other properties.
When you compare properties, make sure to use references of recent sales (i.e. sales that took place within the last six months). If a sales price is already a year old, there’s a big chance that the lender will not accept it, because the market can change within a six-month cycle.
The real estate market will be a good determining factor to evaluate how easy or difficult it is to find an accurate comp. During a hot market, these comps can be useful, but in a less busy market you’re hardly likely to find a good one. In addition, if you are looking for special deals or features, you may find it difficult to get a property with outstanding standards. The marketability of a property is not going to be the same in all seasons. In a particular time frame, high-end houses might be trending now while a cheaper bungalow-type home remains unsold, but it can shift toward the other way in another time.
Who: A middle-aged couple preparing for retirement went shopping for a home in Georgia last month.
Circumstances: They want a comfortable home with a big backyard for their pets roam around freely, and enough garden space to grow some vegetables.
The house: The perfect match was located near the village among big old farmhouses.
The dilemma: The buyer’s agent couldn’t get the current owner to agree to sell this property that has been sitting empty for five years already. Despite the housing market going down in Texas, homeowners and property owners alike refuse to sell. On top of this, the agent couldn’t get comparable properties that match what the prospective buyer can afford. In their excitement, the couple already sold their home in the hope that they will be able to move in a few weeks prior to the sale. Now they are left renting a small house by the station just a few miles from their desired home.
Solution: The bank’s appraiser already went in to help the agent in search of a comparable property. They found a satisfactory candidate at an adjacent town by the mountains, and it fits the couple’s capacity to pay.
Important elements in a property comparison
- Area or location. Sometimes the ideal comps will not be applicable in the neighborhood you want because the home you dream of buying is unavailable at the moment. As a result, you need to set your sights on another location with similar features that you are interested in. The dilemma here is you need to ensure that you know the ins and outs of the new neighborhood in question because it might not be comparable to your first choice. You may find a home with the same features but with some imperfections.
- Amenities. Not all neighborhoods offer amenities like a swimming pool, a common library, a fitness center, recreational park, 24/7 grocery store, a church, and magnificent views.
- Size. How big the house is, how many rooms it has, and how big the lot and floor area are will contribute to finding the right comps.
- Age of the house. Homes built in the same era will likely have the same features. Appraisers use this as a tool in valuing homes. Additional amenities to the original home may affect the value of a property.
In some cases, the value of a home may be affected by unexpected factors:
- Some home prices may be a bit lower than what it is actually worth because it was acquired by death or divorce. In suspicious instances, it would be wise to let the agent get to the bottom of the story.
- War, elections, oil price changes, global crisis, or actions by the Federal Reserve Board – these are factors well beyond your control and may cause a dramatic rise and fall of housing prices in just a matter of weeks. The real estate market is sometimes favorable to the buyer and in other instances to the seller.
What's it worth to you?
Working with an agent can benefit the buyer. You have to be clear with your agent on what amenities you are looking for so that they can limit their search on your criteria. You also need to assert yourself in terms of budget so that the agent won’t go overboard looking for a home you don’t really want. Check the listings to ensure that everything that is being promised is actually there.
Finally, do not hesitate to ask questions on things you are not familiar with. Make everything crystal clear so that you won’t regret the home purchase after the closing is complete.