The excitement of finally identifying that dream house that ticks all boxes is soon followed by confusion over the pricing. Is the pricing fair? Should I rush to make an offer to avoid losing out? Is this a good investment? On the one hand, owning your own home is a significant milestone, but navigating the complex world of real estate, especially determining the fair value of a property, can be overwhelming.
To help you get a fair deal, this article guides you through assessing a home’s asking price. Finally, you’ll get the knowledge required to estimate what a house is worth to avoid overpaying amidst all the excitement. Read on.
Understanding the Concept of Fair Market Value
First things first, what does fair market value mean? Fair market value (FMV) in real estate refers to the determined price a house will sell for in an open market. This is the price that a willing buyer and a willing seller would agree to in an open and competitive market during normal conditions. This is different from the market value, which is the price at which the house will actually sell for.
Fair market value is a hypothetical figure that can vary depending on the property’s unique features, size, age, land, architectural style, and finishes. Other factors include the property’s condition, current market trends, and demand. Before you make an offer, take time to understand the concept of fair market value and talk to your real estate agent about it.
What Affects a Home’s Value?
Is the home worth what the seller is asking for? To answer that you must know how to determine a home’s value. Some factors to consider include:
- The property’s location: This is crucial to getting the most valuable properties. The site encompasses security, accessibility, amenities, transportation options, and future appreciation potential.
- The property’s condition: A run-down or old home may require higher maintenance costs. If the property’s condition isn’t good, the home’s value is lower compared to other houses in the neighborhood.
- Property size: A larger house that occupies a large lot will have a higher value, especially if the location and neighborhood are desirable.
- Property features: Specific interior and exterior features add to a home’s value. For example, energy-efficient windows, pool and outdoor amenities, landscaping, eco-friendly additions, basement finishing, and other home upgrades boost the value of a house.
- The neighborhood: A desirable area with good schools, easy access to transportation, and amenities such as parks and shops will typically command a higher price than a similar property in a less desirable location.
Is the Home Asking Price Fair? Here are Some Pro Tips
While a home is such an exciting investment, you want to get the best deal by determining whether the asking price of a home is fair. Here are some tips for doing it like a real estate pro:
- Research the Local Real Estate Market
Get familiar with the local real estate by looking up recent sales data for similar properties in the same neighborhood or area. Online tools like Zillow and Redfin can provide valuable insights into the local real estate market. From these online platforms, you can get recent sales data, compare prices of similar properties, and get a sense of current market trends and demand. How hot is the market? Is it a buyers’ or seller’s market? What are home price projections?
Attend open houses and talk to local real estate agents for a better market feel. In addition, real estate agents can provide valuable insights into the market’s current state, including pricing and demand trends.
- Do a Comparative Market Analysis
With a better understanding of the local real estate market, you can begin comparing the asking prices of similar homes. A Comparative Market Analysis (CMA) helps estimate the value of a specific property by looking at similar ones that have recently sold in the same area. To do this, you’ll need recent sales data for homes similar in size, condition, and features to the property you’re interested in.
Leverage tools such as Zillow and Redfin to filter your search results by specific criteria, such as the number of bedrooms and bathrooms, square footage, and location. When comparing asking prices, it’s important to consider factors such as the property’s condition, any upgrades or renovations that have been made, and the location. You should also consider any additional costs associated with the property, such as homeowner association fees or property taxes.
- Leverage the Expertise of a Local Real Estate Agent
There’s no gainsaying a local real estate agent’s crucial role in getting you that first home you desire. In addition, a local real estate agent is a treasure trove of local real estate market knowledge. The real estate professional offers invaluable insight into the local real estate market, helps you navigate the home-buying process, and assists you in determining the fair value of a property.
Looking at a property, your real estate agent can tell if it’s pretty priced even before delving into the details. Hire a licensed professional with whom you’re comfortable working and who has a good reputation in the local market. Has the real estate agent worked with first-time home buyers before? Are they representing you alone or the seller too? Ask all the questions you feel will address your concerns.
- How are the Market Conditions?
How are home prices doing? This is where the expertise of an excellent real estate agent comes in to determine if this is a seller’s or buyer’s market. You can tell whether the home is reasonably priced by analyzing where the local real estate market is on the real estate boom-and-bust curve.
While homes are usually overpriced in a seller’s market, the trend might be different if the market has just started rising. You might also discover that a home is overpriced in a buyer’s market because prices have only recently begun to decline. But, again, your real estate agent has the relevant data to help you understand the market conditions.
- Get a Home Inspections to Determine Value
Home inspection is a visual assessment of a property by a licensed professional to look for any potential issues. This is a crucial step in the home buying process and can tell you if the asking price is fair through valuable insights into a property’s condition and value.
A professional inspector assesses the property’s structural integrity, electrical and plumbing systems, and other features to identify potential issues or problems. With the home inspection report, you can negotiate the asking price of a property if there are significant problems or issues.
- Get a Home Appraisal
If your real estate agent has advised you to make a later accepted offer, the next step should be a home appraisal. A licensed appraiser determines the fair market value of a home through an unbiased assessment of the house.
Some factors considered include the age and condition of the house, any upgrades made to the property, and how it compares to similar properties in the area. You have room to renegotiate if the appraisal returns lower than the asking price. If the appraisal is higher, this means you got a fair deal.
- Consider Who Is Selling
Most homes on the market have a selling estate agent involved. However, you might find a home with for-sale-by-owner (FSBO) sign. While such properties might be appealing, there are factors to consider in determining if the asking price is fair. For starters, there is no seller’s agent’s commission (2.5% to 3% on average) which means the asking price should be lower. In addition, without the guidance of a real estate agent, the seller might overprice their property.
- Has The Property Overstayed On Market
Days on the market refer to the length of time that a home sits for sale. For a buyer, the days on the market can tell you if the property is fairly priced. A home that sits for six months or more generally can be classified as “overpriced.”
While property market fluctuations can change the average time a home will sit, a property that overstays on the market indicates something is wrong with the pricing.
If other comparable properties in the market are selling, this could mean the home you have an eye on is less appealing to other potential buyers. You can use this to negotiate for a fair asking price.
Mistakes to Avoid When Determining Fair Value
In the excitement of owning your first home, it’s easy to make mistakes when determining the fair value of a property. Some common mistakes to avoid include:
- Over-relying on online estimates
- Failing to research the local market
- Being too emotional in determining the value of the property
- Overestimating the value of upgrades or renovations
- Failing to consider the long-term costs of owning a home, such as property taxes, maintenance costs, and homeowner association fees. It’s essential to factor these costs into your budget when determining the fair value of a property.
- Ignoring the expertise of a local real estate agent
- Blindly listening to advice from friends and family members
The joy and excitement of finally identifying your first home gets dulled by the myriad things you have to do before you get the keys. Evaluating if the asking price of a home is fair is one of these daunting tasks for first-time homebuyers. With the insight on the concept of fair market value, you now have a headstart when it comes to determining if the asking price is fair. Only make an offer after researching the local real estate market and fully understanding the property. The best way to get a good deal for your first home is to work with a reputable real estate agent who will help you make an informed decision and negotiate a fair price.
Ready to take the next step in your home-buying journey? Be sure to check out the best first-time home-buying course in town. Our expert instructors will provide you with valuable insights and guidance to make the most of your investment and find the home of your dreams.