Selling prices of comparable homes have been used by many homebuyers to give them an estimate of the value of a home. While these numbers may give you a cost estimate of the home’s value, it’s important you don’t fully rely completely on them. There can be special circumstances related to the home’s sale that may have driven the price above or below its real market value. It’s important to ask yourself these important questions:
-Was the seller or buyer pressured to close quickly due to time constraints or other special circumstances? A buyer who has an urgent need to move in quickly may pay over current market value on a home.
-Did the sales price include any from the seller’s furniture or personal property? If a sale included a $10,000 custom surround sound stereo system, custom window shades, extra appliances, and a complete workshop with specialized tools, most most likely the closing sales price will most likely be higher.
-Are the parties related or friends? A home sale between friends or relatives may not accurately reflect the current market value of a home. When a parent sells a home to their children, most likely it won’t be for maximum value.
-Are real estate agents involved? Homebuyers and sellers who work with an sharp agent will probably be much more educated about the real estate marketplace. Their home sales have a tendency to reflect the current marketplace value of a home. However, homebuyers and sellers who handle the purchase or sale on their own tend to pay extra or too little when compared to current market value.
-Is owner financing involved? A buyer may pay extra for property if a seller is willing to assist with financing.
-When did the sale take place? Public records will indicate when a house sale closed. That date indicates when funds were exchanged and title was transferred over to the new owners. However, the date the homebuyer and seller signed the original purchase agreement could have been a number of months prior to closing.
In steady marketplace conditions, a time lag of a few months might not have an effect on the value of property. However, in a volatile market, a time lag of a number of months can affect the marketplace value of homes. Ask your Realtor to review the contract purchase date of the comp sales you’re utilizing. Then ask your agent if the market is changing. Is there an increasing inventory of unsold properties? Are buyers offering considerably less than a home’s listing price? Has open house visitors dwindled to a trickle?
By reviewing these questions, you safeguard yourself against buying a house in a slowing marketplace with decreasing values. When you notice the real estate marketplace conditions changing, it’s essential to spend additional time investigating past selling prices.