Nolo's Essential Guide to Buying Your First Home (18 page)
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Authors: Ilona Bray,Alayna Schroeder,Marcia Stewart
Tags: #Law, #Business & Economics, #House buying, #Property, #Real Estate
BOOK: Nolo's Essential Guide to Buying Your First Home
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How Much Did That One Go For? Researching “Comparable” Sales
All the houses you see advertised come with a price tag—but the price may have little to do with reality. How much a buyer actually pays will probably vary from the list price, up or down, by thousands or even tens of thousands of dollars. In a softening market, many sellers have an inflated idea of what their house is worth, and it eventually sells for less. In hot markets, some sellers set an artificially low list price in hopes of attracting a large pool of potential buyers, which results in outrageously high bids.
There’s no sense in choosing—or eliminating—a neighborhood or area based on price until you find out how much houses there are
really
selling for. (Later, such knowledge will ensure you don’t pay too much or offer too little for a particular house.) Look at sale prices of houses comparable to the type you’re interested in, or “comps.” The most accurate comps come from houses that sold recently (preferably within the last six months) within the same general area (around six blocks) and with the same basic features as the house you hope to buy (like number of bedrooms, square footage, garage, neighborhood, lot size, general condition and construction quality, and landscaping).
really
selling for. (Later, such knowledge will ensure you don’t pay too much or offer too little for a particular house.) Look at sale prices of houses comparable to the type you’re interested in, or “comps.” The most accurate comps come from houses that sold recently (preferably within the last six months) within the same general area (around six blocks) and with the same basic features as the house you hope to buy (like number of bedrooms, square footage, garage, neighborhood, lot size, general condition and construction quality, and landscaping).
You’ll never find two exactly comparable houses, so do your best to take a sort of average. Your agent, once you’re working with one, will also be able to give you this type of information. And when you’re ready to bid on a particular house, the agent may draft up a report on the comps. But for quick and dirty comparable sales data, use the websites listed below.
CHECK IT OUTHere’s where to get comparable sales data.
Two cautions apply, however: One, the listings may be out of date. Two, beware of signing up to be contacted by an agent.
EXAMPLE:
Paul and Leslie want to buy a three-bedroom house in Ardmore, Pennsylvania. They take the address of one such local home and pop it into one of the websites above. The closest matches are a three-bedroom, one-bath house that sold for $250,000 three months ago; a three-bedroom, 1½-bath house that sold for $275,000 five months ago; and a three-bedroom, one-bath that sold for $228,000 six months ago. Without looking at the actual houses, they project that they’ll need to pay somewhere in the mid- to high-$200,000s for the house they want. They might also posit that prices are rising, that the house currently for sale may be overpriced, or that adding a one-half bath can measurably raise the value of a house. Unfortunately, websites don’t tell you about details such as house style, condition, landscaping, or charm. As Paul and Leslie start visiting actual houses and working with a knowledgeable agent, they’ll have a chance to sharpen their understanding of local house values.
Paul and Leslie want to buy a three-bedroom house in Ardmore, Pennsylvania. They take the address of one such local home and pop it into one of the websites above. The closest matches are a three-bedroom, one-bath house that sold for $250,000 three months ago; a three-bedroom, 1½-bath house that sold for $275,000 five months ago; and a three-bedroom, one-bath that sold for $228,000 six months ago. Without looking at the actual houses, they project that they’ll need to pay somewhere in the mid- to high-$200,000s for the house they want. They might also posit that prices are rising, that the house currently for sale may be overpriced, or that adding a one-half bath can measurably raise the value of a house. Unfortunately, websites don’t tell you about details such as house style, condition, landscaping, or charm. As Paul and Leslie start visiting actual houses and working with a knowledgeable agent, they’ll have a chance to sharpen their understanding of local house values.
Eventually, your knowledge of sale prices will turn you into a sort of amateur appraiser and help you decide on the appropriate price for houses you’re looking at. Don’t discount the value of your own research and intuition: House values depend partly on buyers’ subjective responses to them, and you’re a buyer. Placing an exact market value on a house is an inexact science, though appraisers, real estate agents, and sellers do their best to come close.
Hot or Cold? Take the Market’s TempTo figure out home values, you also need to know whether you’re in a market that’s primarily hot or cold (or balanced somewhere in between). At local open houses, do you have to wait in line just to squeeze up the stairs, or do you find yourself all alone with a chatty seller’s agent? When talking with friends about homebuying, do they tell stories of how being outbid on houses drove them to couples’ counseling, or how they’re plotting how to get a bargain from a seller whose house has languished on the market for weeks? These are just a few of the more extreme indicators of whether the local housing market is hot or cold.
A hot market means there are more buyers than sellers, or not enough houses on the market to satisfy demand. As soon as a house is listed for sale, it’s snapped up, and sellers can be inflexible about the price and buyers’ other negotiating requests. In the hottest markets, sellers may pit you against other buyers competing to offer the highest price, the shortest closing period, and the smoothest transaction.
A cold market means there are more sellers than buyers, and houses may remain on the market for months at a time, waiting for a buyer. If, as happened in 2008, this is coupled with a major economic downturn, foreclosures can flood the market and bring down prices. This gives the buyer leverage when negotiating, because the longer a seller has waited, the more desperate he or she may be to unload the place. Meanwhile, sellers know that you have other options.
TIPMarkets can be lukewarm or mixed, too.
As Realtor® Mark Nash notes, “Hot and cold is a generalization. For example, in some markets, starter single-family homes could be hot, and penthouse condos could be cold.”
The urgency of your house search, and your approach to sellers, will all be shaped by knowing whether you’re in a market that’s hot, cold, transitional, or balanced in the middle. It’s not hard to figure out the basic “hot or cold?” question. The more difficult part is to gauge where the market is going—a market can move up or down in a matter of weeks. It can be affected by the local and national economy, mortgage interest rates, the availability and cost of housing (including rentals), the supply of and demand for homes, and more. Scads of real estate commentators make their living trying to predict what’s next, but none know for sure. Nor do they specialize in the corner of the world you’re looking at, which might have its own mini hot and cold regions.
You’ll develop a sense of where your local market is going once you start seriously househunting. If, after several weeks, you find yourself able to predict the asking prices of newly offered homes, the market is probably pretty stable. If, on the other hand, you notice open house or “price reduced” signs on houses you looked at a few weeks ago, the market is probably plateauing or cooling. A real estate agent can also tell you about cooling trends, based on an increasing number of listings in their MLS database and a longer average time that houses stay on the market. And if you’ve been outbid on a house or two and notice that the list prices of similar houses seem to be inching out of your range, the market is heating up and you’ll need to act quickly.
TIPDon’t put your life on hold trying to predict the future.
For every person who waited for the market to drop further and got a good price, there’s another one who watched it pass them by. Just find a house you want at a price that’s fair and affordable at the time. If you’re planning to stay there for more than a few years, you’ll weather any downturns.
Waiting for the downturn that never came.
Eva, an artist, says, “At one point, I thought I’d never marry and decided to buy my own house. I began looking, accompanied by my dad, who’d offered to pitch in on the down payment. But every time I found a place I liked, my dad said, ‘That’s way too much, prices will come down soon.’ He said that first about houses in the $200,000 range. Then I watched as similar houses started selling for $300,000, then $400,000. I bought a tiny place soon after, which fortunately has since risen in value. But it kills me that I could have had it for much less a couple years earlier—or could have had a bigger house that would fit my, guess what, husband and new baby!”
Just Looking: The Open House TourEva, an artist, says, “At one point, I thought I’d never marry and decided to buy my own house. I began looking, accompanied by my dad, who’d offered to pitch in on the down payment. But every time I found a place I liked, my dad said, ‘That’s way too much, prices will come down soon.’ He said that first about houses in the $200,000 range. Then I watched as similar houses started selling for $300,000, then $400,000. I bought a tiny place soon after, which fortunately has since risen in value. But it kills me that I could have had it for much less a couple years earlier—or could have had a bigger house that would fit my, guess what, husband and new baby!”
Visiting open houses—where sellers throw the doors open to just about any interested party—is educational, free, and fun. For now, don’t look only at houses that are smack dab in your price range. By looking at too-expensive and too-cheap houses, you’ll get a feel for what various house features—like another bedroom or an updated kitchen—are worth. As you visit open houses, compare their features to your Dream List, to get a sense of which items will or won’t be easy to find. Now’s a good time to refine your list, too, if you realize that “a fenced yard would be great,” or “I can’t live next to an apartment complex.”
Remember, unless you’re ready to read the rest of the chapters and ramp up your activities in a hurry, don’t fall in love with a house yet. You’re still getting to know what’s out there. In later chapters, we’ll discuss how to take a hard look at a particular house—evaluate its physical condition, whether it’s priced appropriately, and whether it meets your long- and short-term needs—as well as how to prepare an appropriate offer.
If a house really does look perfect, and you can’t resist, at least heed this final warning: Don’t sign anything on the spot. You may meet an oh-so-friendly agent who says, “I can write up your offer, no problem!” That agent represents the seller, whose interests, including getting the highest price and the most advantageous terms, will be put first. Go home, take a deep breath, look at later chapters of this book, and do some quick shopping for a buyer’s agent—if you really want to buy that house.
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