Everyone wants to get a good deal when buying a home. But how do you know if you’re getting a good deal or not? How do you position yourself to take advantage when a deal comes along?
This first part of our two-part series will discuss these issues.
How Do I Know If I’m Getting a Good Deal on a House?
The steps you take may vary depending on where you are in the buying process. If you are searching for a house, you should know what the comparable sales (comps) are. Most of the major real estate sites will give you data on sales of similar or nearby homes when you put in a location. When checking these sites make sure you are:
- Comparing similar types of transactions. Compare a foreclosure situation to another foreclosure, a short sale to a short sale, a straight equity sale to another straight equity sale. Different transaction types have different considerations that may affect the price. For example, a short sale may take a year or more to close because of the verification and approvals that have to be obtained. Many buyers might not want to wait that long and so the lack of competing buyers might translate into a lower price. This same lack of buyers might not apply to a straight equity sale and the downward price pressure thus wouldn’t either.
- Looking for the “Sold” prices, not the listing prices. The sold pricing reflects what the house was worth to a buyer, the listing price just reflects what an owner feels their house is worth. Sometimes there is a big difference.
- Making sure your comps are as comparable as possible – Same number of bathrooms/bath, close to same square feet, similar/same neighborhood, similar condition, and similar acreage.
If you have already identified a house you like, you can ask the seller’s agent for the comps they used in coming up with their price, or your agent can put a comp analysis together for you.
Another option would be to go down the courthouse and get the courthouse records. Here you will find the assessed values of houses. The assessed value of your home is generally based on a percentage (assessment rate determined by the local city or county) of the fair market value or home appraisal value of your home. Once you know the assessment rate, you can determine their estimate of full market value, or you can compare assessed values of comps.
If you have bid on a property it is a good idea to have an independent appraisal done by an appraiser. This will give you the best estimation of the fair market price and tell you what kind of deal you are getting.
Another way of assessing a good deal is to find out the average discount between the list price and the sell price for houses in the area. For example, if houses normally sell for 5% less than their listing price and the house you bought was for 8% below listing, you might have gotten a deal. Your realtor can give you this information.
How to Find Bargains When Buying a House
To get a bargain, you have to be ready to react when you find one. To get yourself ready, you should take several steps.
- Be prepared to shop in the off-season. As data by Homelight indicate, if you start your search in March during the popular spring market you will pay an extra 3.83% on average due to the increased level of buyer competition. It’s better to wait until November to start your home search because buyers who bought in February saved 7.17% on their purchases by beating the spring rush. To drill down to season trends in your individual market input your city and look for “worst month to sell” which would translate into “best month to buy”.
- Assess Your Wants vs Needs – sometimes getting a bargain means you have to compromise. There are houses that are a great deal, but they just don’t have everything you’re looking for. Identify things that can be added at a later date if the deal is good enough.
- Make Yourself the Ideal Buyer – get your finances in order. These days sellers often have multiple offers. While how much somebody is willing to pay is usually the first consideration, things such as “the hassle factor” also come into play. Sellers want less strings attached and less hassle. Cash buyers have an advantage, followed by others who already have their financing in order. For example, people who have already been pre-approved for a mortgage show that they have already taken the steps to understand the mortgage process and how much they can afford.
- Search for Areas with Low Property Taxes – Your monthly house payments will include principal, interest, insurance and property taxes. The lower the property taxes, the lower your payment. Property taxes are assessed by the local government at a set rate (the mil rate) and calculated based on a percentage of your assessed property value. The typical U.S homeowner pays $2,279 in property taxes per year, or $189 per month, though in some states and counties it can be a lot higher. Here is a listing of property tax rates by state. Searching areas with lower taxes might make sense, but make sure you understand why those taxes might be lower. As an example, if you don’t have children of school age, you might want to target your house hunting to a suburban area without schools, which will save you hundreds per month on taxes since schools are often a big part of the city tax budget.
Now that you know how to identify a deal and how to prepare for one, next week’s article will tell you where to look for them! We will discuss four primary ways of identifying leads – properties that are already on market, properties that are off-market, short-sales and foreclosures.
Before you read Part Two, you might want to make sure you are ready to take advantage of some of the tips. To start the pre-qualification process and to see how much you can afford, contact an EMM Loans Officer today.