Q: We are in the process of buying our first house. My question is, what is a good first offer to make on a house and how do you judge whether the price is right for the property?
Should I use the assessed value of the property and compare that the list price??
A: There’s no pre-determined way to make a first offer on a house. Deciding that you’re going to offer 10 percent less than the asking price so that the seller meets you in the middle at, say, 5 percent below the asking price, is the wrong way to think about pricing.
In some cases, the right price will be 5 percent below the list price, the list price itself, or, in some insane markets, 5 percent above the list price — or more.
To develop the best offer, you’ll need to do your homework.
Most home buyers look at the neighborhood “comps,” or the sales prices of home similar to the one you want to buy. Take a look at the amenities these homes have and how much they sold for. Now, take a look at the home you want to buy. What amenities does it have compared to the other homes in the neighborhood?
If you do this exercise often enough, you’ll soon be able to get an idea of what I call “relative value.” In other words, you’ll see a relationship between a home’s amenities and its sales price, and you’ll be able to figure out the purchase price you’re willing to pay for a particular home based on what other hoes have sold for.
You should spend a fair amount of time visiting local open houses. That way, when those properties sell, you can find out how much they sold for. In time, you and your spouse or partner will get a feel for what value means in your neighborhood of choice, and you’ll be able to apply your knowledge to new properties that come on the market.
The assessed value is a number that the tax assessor assigns to the property. In some places, it rarely has any relationship to the list price or, for that matter, the actual market value of the property. Rather than using the assessed valuation, you’d be better off spending your time looking at the prices other buyers are willing to pay for homes in your neighborhood.
That’s the best indication of the actual value.
June 10, 2005.