Homebuyers want to shave off as much money from the sale price as possible, and home sellers want to squeeze every last dollar they can out of the deal. So how do you know whether you're getting a good deal on a home in today's market? Here are 6 factors you must consider to help you get a great deal on your new home.
Start with a CMA
CMA, which stands for Comparative Market Analysis, is your first step in determining whether or not you're getting a good deal on a home. Take a look at homes similar to the one you're interested in to get a sense for how much the one you are considering buying is worth. Make sure that the homes you look at are in the same neighborhood as the one you're interested in and are in similar condition. Don't compare it against a foreclosed home if the one you're interested in isn't in foreclosure (and vice versa).
If the home you're after is priced at or below the market value of comparable homes, then you're most likely getting a good deal. If it's above that, then it's not as much of a steal.
Is the seller throwing in any "extras"?
A good deal on a home comes in lots of shapes and sizes. See what the seller is willing to offer to sweeten the deal. If the seller has agreed to help pay for some or all of the closing costs, that should be factored into whether you're getting a good deal. Are they offering an allowance to pay for repairs and/or upgrades to the home? That could save you money in renovation costs, if any are needed.
Do the math: What's the LP to SP ratio?
Have your real estate agent help you calculate the LP:SP, which simply means the ratio between the listing price and the sale price. If you're getting a good deal, the ratio will be more than one, meaning that you are purchasing the home for less than its listing price. However, if the ratio is less than one, try to negotiate a better deal with the seller.
Is it a seller's or buyer's market?
You must consider whether you are buying in a seller's market (meaning that homes are selling for more than their listing prices) or a buyer's market (homes are selling for less than their listing prices). If you're buying in a buyer's market, you're in luck! You are more likely to find a bargain this way. However, if you're house-hunting in a seller's market, it will be trickier to get a good deal because sellers have the upper hand. In this case, any extras that the seller is willing to throw in will help make the deal more attractive to you.
What season are you buying in?
Keep in mind that the season you're buying in has a huge effect on home prices. Summer is usually the most expensive time to buy. There tends to be a lot of inventory during the summer months, but competition drives the prices up. If you really want a deal, hold off buying until the fall or winter, when prices can drop dramatically.
Appreciation opportunities should also be factored into whether you're getting a good deal. If you're buying a home way below the asking price but it's located in a depressed area with little development, your home won't appreciate much over the years. However, if you find a more expensive home but the area is "up and coming" with lots of new development, it could be worth the higher asking price because the home will become more valuable in the years to come. Signs of appreciation opportunities include new developments such as malls, parks, bike paths and — sometimes — residential buildings.
To ensure you're getting the best deal on a home, reach out to us today!