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How To Determine A Home's Value

by The Schuman Team
Price For A Home
How Much To Pay For That Home?

Determining the value of a home is a big challenge to both buyers and sellers.

Since the seller, by virtue of their list price, has already determined the price they feel their home is worth, we will focus on helping a buyer determine value.

 

WHO DETERMINES VALUE?

In simplest terms, a home is only worth what someone is willing to pay for it. In a perfect world, a buyer would find a home, tell the seller how much they want to pay for it, the seller would easily agree, and everyone would then hold hands and sing Kumbaya.

We all now this isn't how things work. Every buyer wants to pay as little as possible, and every seller wants as much as they can get. There is typically disagreement before an offer is even made.

For this reason, negotiating the price on a home is one of the more difficult transactions you will encounter. If you follow our tips below, this part of the process will be easier.

 

START WITH THE FACTS

There are 3 statistics that can be used to help determine value:

1. Price of Recent Sales ( Comps )

2. Average Price Per Square Foot

3. Percentage of List Price

Let's go over each one of these starting with comparable sales.  The best way to get value is to find recent similar sales ( same neighborhood, price point, sold within 6 months ) and compare them to the home you are buying. While it certainly helps if you have personally seen these homes when they were for sale, it isn't a must.

Start with the best recent sale and compare it to the home you want to buy. You should consider what the recent sale has/doesn't have and make appropriate adjustments.

For example, if you are looking at a home listed for $400,000 that has a 3 car garage, and the best recent sale was $375,000 but had only a 2 car garage, an adjustment would be appropriate of $10,000-$15,000. You can do the same thing with number of bedrooms, baths, and amenities such as finished basement.

While price per square foot is not the preferred method of determining value for an appraiser, it is sometimes helpful as a secondary method just to make sure you are in the ballpark.

For example, if homes are selling for an average of $150 / sq. ft. , with the range being $125-175, paying $185 may be excessive, unless there are compensating factors. Remember, we are talking about AVERAGE price/sq. foot, so if the home you are buying is above average in your opinion ( updates, superior finishes, etc...) than paying higher in the range would be acceptable.

Finally, seeing what homes sell for in terms of sale price/final list price ( it is typically 94-96% in most areas here in Cleveland ) will give you an idea of a range in which you could expect to pay for a home that you feel is priced fairly.

If homes are selling for 95% of the value, than in the example above, paying $380,000 for a $400,000 home would be realistic. That doesn't mean you couldn't buy it for less, or you wouldn't have to pay more, these figures are just used to help guide you.

 

GET RID OF THE NOISE

It is very easy for a buyer to get distracted and lose sight of the big picture.

There are many different personalities at play; buyers, sellers, agents, and often parents and friends who always want to put their two cents into the equation. Therefore, we recommend focusing on the numbers and following your instincts.

Having a knowledgeable agent to guide you is a major plus. However, at the end of the day, you are the one who ultimately makes the decisions, so you need to be comfortable with the process of determining value.

By following our advice, you will be on your way to figuring out a fair price for any home.

Is Earnest Money Important?

by The Schuman Team

 

earnest money check

When writing an offer, there are many factors that are considered to be important, such as price and closing dates. One of the often overlooked items that appear in the purchase agreement is earnest money, the topic of today's post.

DO YOU REALLY NEED IT?

First off, earnest money, or good faith money is not required in Ohio. However, it is a way to convey your commitment to purchasing a home and is expected by local sellers. Sometimes it can even make a difference in whether or not a seller accepts an offer.

Buyers always ask us how much they should offer. There is no set rule on this although we do recommend at least 1-2% of the purchase price. So, for example, earnest money on a $300,000 offer would be $3000-$6000. Again, there's no set rule on this and you could certainly go above or below this threshold if you'd like, it's just a gauge we use.

Some buyers, especially first timers, are always a little reluctant to give any money up front because they often don't understand how it works. There is actually very little risk in offering earnest money. The money is held by a third party, not given directly to the sellers. If for some reason the deal doesn't work out for a legitimate reason, the money gets returned to the buyers.

IT CAN MAKE A DIFFERENCE

Earnest money is a way to show your commitment and can actually be a deciding factor. I have been on the listing side of a transaction where we received two offers that were similar in price. The sellers felt that the buyer who offered a significant amount of earnest money was more serious and chose to work with them.  This may be a rare case, but is something not to be taken lightly.

When all is said and done, price is likely the most important thing to a seller. However, showing your strength as a buyer can make a difference so it's worthy to discuss earnest money with your agent

Displaying blog entries 1-2 of 2

Contact Information

The Schuman Team
HOWARD HANNA REAL ESTATE SERVICES
3550 Lander Road
Pepper Pike OH 44122
Dan: 216-346-3235
Amy: 216-403-9189
Fax: 216-456-2333