Before You Make An Offer

Foreclosures 60% below market priceWelcome to Part 3 of How to Buy a House. If you haven’t already, check out part 1 and part 2 of the How to Buy a House series.

Determining Home Value

1. View the property. Get an appointment to have the agent show it to you. Take the information from each house that you view down on a 3×5″ index card and take digital pictures.

2. Determine the Value of the Property. This step is critical. While you may want to just listen to the agent about the value of homes in the area, weigh the agent’s opinion with the ones you receive from:

* Neighbors- Visit the 6 closest neighbors, the ones on the right and left of the property and the three across the street from the house.

Ask what properties nearby have sold for. Ask them about the neighborhood and even any gossip about property values. Go without the agent present and listen carefully. Smile a lot and try to get them to spill valuable info. Remember, for better or worse, these will be your future neighbors if you move into the house.

* Call a title company and ask for prices of comparatives (comps) in the area.

* Ask real estate people familiar with the area what they feel the value is, besides the agents you are affiliated with

* If you are very serious about the home and don’t feel satisfied, hire an appraiser. While they usually cost anywhere from $300-$400, it might be worth it in sunk costs to spend the money, especially if you stand to save a lot by offering less.

* Check zillow.com for an approximate value of the homes around your potential choice. I like Zillow a lot, but it can be very approximate due to the nature of the housing market recently.

3. Evaluate Fix-Up Costs. Hire a professional home inspector or contractor to go through the property carefully. They should write down everything wrong with the property and the amount of money it will take to remodel it to like-new condition.

Calculate your Offer

Property Value Careful, this is the most important part of How to Buy a House. If you get all glowy and emotional right now over the idea of your dream home, you are sunk. Remember, there are MANY MANY potential dream homes available. This isn’t the only one.

If you screw up this negotiation and have to walk away, there will be PLENTY more to choose from. If you cave because you feel like this will be the only deal ever, you could screw yourself financially for a long time by overpaying for a home. Put your game face on and get tough.

Determine the value of the property as an average of the values that you have gotten through your own research and how much it will cost to fix-up the property.

Figure out what the difference between the amount you’ve figured out the house is worth and how much the seller is asking for the home is. If they are trying to sell it for less than your value, minus fix-up costs, then snap it up quickly, for you have found something that no one ever has before =).

Usually, there will be a difference between the value that you’ve uncovered and the asking price of the home. The amount that you offer for the home should be the price that you have uncovered minus the fix-up costs.

If the price that the seller is asking is WAY more than the price you’ve uncovered yourself, ask yourself why there is such a big difference. Are they being too optimistic? Is it a seller’s market where houses are being sold the day they are put on the market? Are you being unrealistic?

If it is a buyer’s market, you are more likely to be successful with a lower bid.

In a seller’s market (wait, why are you buying in a seller’s market??), you will have to pay more for homes. Weigh these variables carefully.

At any rate, the negotiation will start when you decide on what the property is worth to you and have the agent make an offer on the home. By law, the agent is required to present the offer to the seller. It is possible that you’ll feel a lot of emotions when you are getting ready to present an offer.

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