Buying or selling a home is a funny endeavor (but not ha-ha funny – puzzling funny!). It’s your biggest purchase ever, but unlike many smaller purchases, making an offer on a home can feel like pulling numbers out of a hat. And selling’s no easier – the stakes are so high, and the market’s so tough that you want to take any offer you can get, but at the same time, it’s difficult to know whether you’re leaving money on the table when you do finally sign on the dotted line.
Buyer’s remorse often arises as soon as you get the contract back with the seller’s signature on it – that desperate hope that your offer will be accepted instantly plummets into an “oh no – they took it – I must have offered too much! I’ll bet I could have gotten it for $X thousand less!” If you’ve experienced this, rest assured that the same evening, the sellers were feeling the same thing: “Oh no, if I’d held out, I bet I could have gotten more!”
The best way to manage the emotional freak-out of both buyer’s and seller’s remorse is with information; here’s how to know whether or not you’re getting a good deal when you buy or sell your home.
1. Know what ‘good deal’ means TO YOU: Is a good deal getting the home of your dreams, over multiple offers, at a price you can afford? Is it buying a home for 30% less than its current owner paid for it? Is it getting a bargain, meaning you get a discount off what the home is worth on the open market? That’s what people call having instant equity, and is possible when the seller’s situation, the property’s condition, your shrewd negotiating skills or your exceptionally good looks (!) enable you to get a home for a price lower than the price similar properties in the area are selling for or lower than it appraises for (the latter of these is less frequent, as many appraisers simply do not make a practice of appraising homes for much more than the purchase price agreed to by the buyer and seller in the transaction. Oh, and btw, you won’t know what it appraises for until you agree to a price and get into contract!)
If you’re selling your home, know what your own top priority is – is it to move your home quickly, so you can buy at today’s bargain basement prices and interest rates? Is it to get every single dollar you can out of the house? Is it just to divest of the home and get closure as soon as possible, because you’re struggling to keep up with the payments?
What is a great deal to one buyer or seller may not be to another, because real estate is about life – and whether YOUR real estate outcomes are good or bad is about YOUR life! So, the first step to knowing whether you’re getting a good deal is to know what your own personal priorities for the transaction are.
2. Do the math – compare “your” price to other benchmarks. The price you agree to pay or accept for a home is meaningless in a vacuum; to understand whether it’s a “good” price, you’ve got to compare it with a few pricing benchmarks.
The most important of these benchmarks is also the most difficult to get a handle on: the market value of the home. The definition of ‘market value’ is the price a qualified buyer is willing to pay for the property in an arms-length, open-market transaction; the best way to estimate market value is to look at what similar homes in the area have recently sold for. (The more similar, the more nearby and the more recent – the better.) To compare the price you’ve negotiated with the fair market value of the home, check out recently sold, similar homes on Trulia.
Also, ask your real estate broker or agent for what’s called a Comparative Market Analysis on the home you’re making an offer on (if you’re a buyer), or an updated CMA using recent neighborhood sales (if you’re a seller). If you’re buying, the ideal situation is for your negotiated purchase price to be at or below the home’s value as indiciated by the comparables and the CMA; if you’re a seller, your goal is to receive a price at or above the market value. (To be sure, if you’re a seller on today’s market, it’s an equally worthy goal to get your home sold – at all! – in many markets. So don’t get hung up if you’re not getting right around – or even slightly below – what you think your home is worth.)
Many buyers try to compare the end price of their home to (a) the list price, or (b) the price per square foot. Comparing your negotiated price to the list price is interesting, but a big gap could indicate a number of things: you could be getting a great deal, you (or your agent) could be a great negotiator, or the seller could be very unrealistic or motivated. Same on the seller’s side – an over-asking price usually indicates an aggressively low list price and multiple offers from buyers. If the list price is wildly different from the market value of the home, the list price-to-sale price gap may have nothing to do with getting a good deal, on either side.
Price-per-square-foot can be overly sensitive when you look at it on homes that are much smaller than larger than the homes to which you are comparing it. A home could be 20 percent smaller than neighboring homes, but that doesn’t mean it will – or should – be worth 20 percent less; it’s still in the same neighborhood and may be in better condition. Unless you’re comparing very similar homes that are in very similar condition, price-per-square-foot can provide a misleading picture of a home’s value.
3. Factor in the specifics of your situation: seasonality, market dynamics, affordability and the competition. If you’re buying a home in Wisconsin in the winter, buyers should expect to get a better “deal” than in the summertime. When market dynamics indicate prices are trending upward in your neighborhood, what seems like an ‘okay’ deal based on yesterday’s prices may actually be even better than you thought – search Trulia’s Stats and Trends pages for your area for up-to-the-minute price trends in your neighborhood, or even zip code!
If you’re buying a home at a trough in prices for the last five years, with a 4.5 percent loan, that home will be much more affordable to you than it would have been in another time. If you’re a seller of a home where every other home on your block is for sale, and half of them are dirt-cheap foreclosures, that should cause you to upgrade your opinion of a slightly-below-asking offer! Buyers: if you best a dozen other offers, even an above-asking sale price can be a great price, assuming the home appraises at the purchase price and you can afford it!
4. Don’t forget any extra “bang” you’re getting for your buck. Buyers: if the seller is paying some or all of your closing costs, HOA dues, throwing in extra furniture/appliances, or otherwise sweetening the pot, keep that in mind. Sellers: if the buyer has agreed to a fast or slow close, at your request, or even came up a few thousand on their offer price to empower you to pay all your mortgages and liens off, don’t forget that, either.
In today’s real estate market, where sellers are constrained by their upside down mortgages and buyers are constrained by what many see as too-conservative appraisal standards, sometimes a “good deal” is simply one where the other side gives, even a little, to get you something that you want or need to make the deal work for you.
To learn more about the Western North Carolina real estate market, please read our Quarterly Market Report for 3rd Quarter.