As for the other advice below...ummm...ahhh....well....no.
95%-97% if priced at market value? Well, in this case we know it's NOT priced at market value. Otherwise, it would have sold. But in today's soft market, I wouldn't advise starting out at 97% of the list price. Frankly, it's impossible to determine to the penny what market value is. And many sellers leave a bit of wiggle room anyway. If you're absolutely in love with the house and it's one of a kind, maybe 97%. Otherwise, no.
Someone else advises finding out the previous sales price, then adding 3%-4% per year in appreciation to that. No way. Not in today's market. Many markets have declined, some radically. I know lots of properties that sold for $500,000 two years ago that wouldn't bring $400,000 today. Many wouldn't bring $350,000. You want to take one of those and add 6%-8% to that? That makes the $500,000 house now "worth" $540,000...when identical houses today are selling for $350,000. Bad, bad idea.
Someone else suggests staying within 10% of the list price so as to "not insult a seller" (though he does acknowledge that the offer should be based on comps, and that 10% after two years might be too high). Do not--I repeat, do not--worry about insulting a seller. It's your money. If successful, it'll be your house. It's your mortgage. It's your offer. Let the seller be insulted by all the people who didn't make an offer. After two years, the seller should be delighted by your offer, even if it's far greater than a 10% discount.
Look, Legene: You take the comps. Make sure they're recent, and if the market's declining, as it is in many areas, discount the comps accordingly. That's your initial "maximum allowable price." Then you check with a mortgage broker, and evaluate your own finances. How much can you reasonable afford to spend? That's your second "maximum allowable price." Now, you take the lower of those two--the comps, or what you can afford--and that's your new "maximum allowable price."
Now you have the maximum you will spend on the property. At this point, you consider which negotiating techniques you want to use. Maybe you make an offer at that figure, marking it as "best and final." Or maybe you choose a figure lower than the list price, so that the average or mid-point between your initial offer and the list price is your "maximum allowable price." Or maybe you negotiate terms as well as price. This is where a good Realtor can help.
But that's how you determine what a reasonable offer is.
Hope that helps.
For example: What if a home was really worth only $40,000 but the seller found an agent that would list the home for $1,000,000.00? Would you offer them say 93% of the asking price or rely on market data? Then on the other hand if a home were priced at say $450,000.00 but other homes just like it were selling for $460,000.00 you might want to offer a little more than the asking price if you want a chance to buy it. This is a stratigy we are seeing in this market. Sellers and agents from time to time will price a home low in order to cause several buyers to bid on the home and drive the price up to market value vs listing high and then resist low offers.
Have you had your Realtor pull recent sales in the area for you?
Good luck finding your new home!
Knowing what to offer comes from many places.
* Understanding the true-value of the home based on comps and CMAs
* Knowledge of what your desired target price is
* Understanding the climate of the current market
* An awareness of the list/sale ratio of recent comparable sales
* Negotiating skill (not to put too fine a point on it, but it's much easier to know what to offer, when you'd negotiated for homes before... the more successful times, the better, and you can get a "feel" for the seller, and figure out how they might respond by "profiling" and getting into their mind)
* ... and other intangibles.
As you can see, coming up with that starting point, is a compilation of lots of different things, all coming together to build that price.
In defense of my example, Adding appreciation into the sales price is a valid method of ballparking values. To dismiss it off hand as a "Bad" idea deserves further discussion. Appreciation should not be the sole determining factor in estimating value, just as you would not just use one home for a comp, or use just 1 neighborhoods comps without refleting on the whole market. It would be a "bad" idea to use one valuation method only. Valuation is not an exact science and is subjective, thus I suggested looking at it from a few different perspectives. There are way to many variables in the market place to arrive at an exact figure. Different markets also appreciate, or depreciate, at varying rates. Sounds like your market is really taking a hit if your wacking off $150-$200k in price in two years. The reverse has been true in other markets where appreciation had run up every year and sellers were doubling the price of their home. Thats the nature of real estate markets and supply and demand. I'm sure you have methods that help define pricing in such markets with huge swings. The question specifically asked about Indianapolis. We have not had huge run ups in price and also have not taken huge hits in our equity, in general. As another poster comented, "Indy's housing market is 'Steady Eddy" compared to most". A majority of the property selling here recieves around 97% of asking price. If not, price reductions take place and 97% is reflected in the new lp/sp metric. A lot of homes sell for full price or more. There will always be overpriced homes in any market and peoples motivation to sell changes daily. Days on market would be a good marker on overpricing. 90-120 days locally to sell is fair. Longer than that, price is usually the issue. The appreciation rate here, in general, has been at pace with inflation. So adding 3-4% a year is a valid method of estimating value in our market, but should not be the sole consideration. Lots of good ideas here, lets not dismiss them off hand. Legene, arm yourself with these ideas and form your own opinion and offer what you believe is fair. As a buyers agent, I try to guide my clients as best possible with the information at hand, but need to remind them, whatever thoughts I have, I can't spend their money for them. They are the ones who must feel comfortable with the price.
I just negotiated $100K off the price of a home for my buyer -- the list price was $699K. So, you really just never know. Every seller is different & motivated by different things.
If it's an estate sale & 4 kids are splitting the net profit (and the house is paid for), they might sit on it to get the BEST price. If it's a corporate relo w/ a buyout, then they might shed a bunch of money in order to unload it from corporate ownership.
Just make sure you hire a negotiating expert as your buyer's agent so you are sure that you get the BEST price no matter what!!
Let me know if I can help you in any way.
Real Estate Links
At the end of the day, price solves everything. So if it's been on the market 2 years, price is an issue. Going back to my original thought; value is what a buyer offers and a seller accepts, not what the property cost new, or what your appraisel says it's worth, or what sold down the street. It's only worth what someone will offer, today. After 2 years on the market, peoples motivation and personal circumstances change, a lower than list offer just may be what is needed to get movement on price.
Some great answers and information on this one.
Getting down to the basics:
1. Do you like the house?
2. It the hous in your price range?
3. Are you buying a home or a house? (will you live and hold for a while or are you looking to sell quick for a profit
4. A little different than #3. Are you buying for % off or because you like it?
5. Have you looked at comparable sales (within two miles and 6-months)? Lender is going to want to see three of them for the apprasial unless your doing a cash sale. When you find how the bank looks at the value it should put everything in line. Now the seller may not accept but at least you can be comfortable that you put a good offer that has third party conformation rather than just picking a number.
Now I am a mortgage loan officer vs. REALTOR. I focus on purchase money and the last three closings (all within a couple of weeks) have sold for asking or near asking price.
So answer the questions to yourself and the offer should be easy.
If you have any mortgage questions let me know. Yesterday a few lenders have just made enhancements to Jumbo Loans that might make sense.
Tony Grego - The Place with Great Rates
A house is only worth what a buyer will pay. If that buyer is getting a mortgage, their willingness to pay a price must be backed by an appraisal to verify the value.
That being said, your offering price should reflect your opinion of value based on a variety of criteria:
Comparable prices: what have similar homes sold for in the recent past in the same neighborhood
Subjective data: Does it have a pool, finished basement, etc. and do the comparable sold homes?
Location: If it's on - or backs up to - a busy street, subtract 10%-20% from the comparable value.
Available inventory: If there are 3 identical homes for sale in a neighborhood, you may be in a position to aggressively negotiate.
As has been eloquently said, the list price has no real bearing on value. We hope that the Listing Agent hasn't told the seller that the property is worth more than it actually is simply to secure the listing. (In the business, we call that "buying" a listing.) That it's been on the market for 2 years indicates that this might be the case. There may be other circumstances contributing to the extended market time, though.
Your REALTORÂ® is your best advocate in this situation.
Joe Shoemaker \ REALTORÂ®
MacDuff Realty Group
2243 Glebe St. \ Carmel \ IN \ 46032
317 413 8501 direct \ 317 663 0722 fax
There are many layers to your question. Here's the scoop. Even though Indy's housing market is 'Steady Eddy" compared to most, and we've been named as one of the first markets poised to rebound early, the buyers are having a field day. Houses are selling well when they are priced at market range. (Sellers set the price, the buyer says its value by what they pay, and the market is the price range of homes sold in the last six months.) So, location and condition are large factors. If a home has been on the market for 2 years I would certainly study it's MLS history. If you are not presently working with a realtor, I'd be happy to give you information to determine how well the property is priced. Also, I just attended the Housing Summit regarding the taxes issue. If the home is in Marion County, the tax issue may have slowed down interest in the home in the last 6 months. Tax assessments for the property may be delayed again this year.
Tiger Realty LLC