Guest Post by Megan Gates
Do as much research as possible before you buy a new home. As an educated buyer, you will have the knowledge to make the best possible decision about your purchase. Having knowledge about the real estate market and process can also make the transaction that much easier.
The first major advice for buyers navigating the market is to hire a real estate broker. Research brokers in the area, and meet with them to determine who has the best grasp on what you’re looking for in a property. The best broker for the job understands the market and knows what their clients want in a property. The broker ultimately links their clients with the best properties for their investment, taking all of the guesswork out of the process. Once you’ve found the right broker, finalize the must-haves for your property and secure your budget.
The average buyer, however, doesn’t fully understand the process of assessing a property worth investing in. In a recent broadcast of “Eye on Real Estate with Dottie Herman” titled, “The Art of Negotiations,” Dottie Herman, the CEO and President of Prudential Douglas Elliman, discussed the three most important aspects to buying a home.
Herman discerns surprisingly different levels of interpretation regarding “worth.” While they may sound very similar in context, worth, value, cost, and price have very different meanings in the real estate market.
Regarding value, Herman states, “It’s an opinion of what you think the home is worth, based on how you’re going to use it.” Value is calculated differently for everyone depending on his or her lifestyle. For example, if you use public transportation frequently and a property is located near public transportation – that increases the value of that property to you. For someone else who doesn’t use public transportation, their value calculation on that property will be less.
What is Cost Anyway?
Regarding costs, Herman stated that sellers believe the cost of the house is what they paid for it plus all the improvements and money that they put into it after that. She elaborates to say that, “Cost is [just] a measure of the past.”
When sellers improve their homes, they are increasing the “value” of the home, rather than the actual “cost” of the home. Each potential buyer measures value of the home differently. So the final offer price will usually not be the same from buyer to buyer. For example, if a home is move-in ready, a buyer may be willing to pay more on the “cost” of the home because that “value” is there. And it is for this reason that Herman emphasizes, “Cost and value are not what the price of the home should be or shouldn’t be.”
Regarding how to determine if a property is priced correctly, Herman says, “Price is what the home should be worth today. But sometimes people don’t price it right, so what you really want to look at is fair market value.”
Fair Market Value
To understand this, ask yourself “what’s the property worth with the conditions we are in today?” Ask your broker this question, or research other properties that have been listed and sold in your target area.
It is important to find properties similar to your prospects that have sold in the last 6 months. Factor in how long they were on the market before selling. Examine the properties in person and compare them to the ones you are considering.
Fair market value is extrapolated from your own preferences and observations in comparison to similar properties. Herman warns to be aware of what Brokers Price Opinion or a CMA (Comparative Market Analysis) won’t tell you.
What the Broker’s Price Opinion or CMA Will Not Tell You:
Wear and Tear
Herman describes wear and tear by comparing two exact homes. After years of use and occupancy, expect two identical properties to present with similarities and differences. This includes the interior updates, repairs and landscaping. Get inside of the property you’re considering for purchase. If you have a good broker, he’ll research all of these details to protect your interest and investment.
Neighboring properties can certainly affect the value, and potentially, the price a home sells for. Neighborhood upkeep greatly affects the value of your investment. Investigate this before making a financial commitment to the property.
Many homeowners purchased properties just from the view. The view from the home affects the value of the property, generally in a positive way. Views of mountains, water, or a golf courses add value and generally increases the price. Many people pay a premium for a view. As Herman says, “you can always find a home, but you can’t replace the view!“
The strategic location of a property, and its proximity to schools, shops and work, greatly affects the purchase decision of many potential homeowners. People prefer alternatives to private school, particularly in the New York City, if they can find a great school district and a home to match their wants and needs.
Go online and do just a little research, such as in Brooklyn Real Estate, to find school district reports and information on the location of a home. Herman reiterates that it’s most important to go look at the properties, along with the surroundings and the neighborhood, to know what value and price you are looking at.
Each property will have different factors that will affect the value, and in turn, may change the price. Appraising is an estimate and Herman states, “there is no exact science to pricing.”