Market Conditions in 20187>Question Details

MM, Home Buyer in 20187

Is now a good time to buy a condo? How do you determine a price in this market for a condo in a good?

Asked by MM, 20187 Thu Jan 24, 2008

location, when there are not many condos in my area to compare it against. Only other condos in 5-10mile radius are much older and not as nice? For the unit I'm looking at nothing has sold within the last 6 months. Is there a certain percentage I should knock off the last known sale price to determine a more adequate price in today's market?

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Don's information on doing the math to look at pricing is good but you also need to look carefully at the condo building and assocation as well before you make an offer. What is the financial situation of the assocation. Look over the condo documents VERY carefully and make sure that there are enough reserves in the acounts to cover any major repairs needed for the building. How much has the condo fee gone up per year over the life of the building? Also check to see the owner occupany rate vs investors. If there are to many investors you may not be able to get financing or the best financing.
Web Reference: http://cindyjoneshomes.com
0 votes Thank Flag Link Thu Jan 24, 2008
The classic advice, of course, is to look at comps. As you seem to be noting, there really aren't any comps--they're some distance away and older. OK, time to use some different strategies.

First, let's get one question out of the way: Is there a certain percentage you should knock off the last known sale? No, but . . .

What we're going to try to do is bracket the price and stay ahead of the market. You say, "For the unit I'm looking at nothing has sold within the last 6 months." OK. That tells us that, regardless of what they're priced at, those other units were priced higher than the market could bear. In short, they were overpriced. By how much? Impossible to say for sure. There are statistics out there showing at what percent of list price properties are selling. It still sounds pretty high--in Fairfax County it's about 95%, according to figures I saw today. But that's kind of misleading. It just means that, of those that sold (presumably the lowest priced/best looking among similar properties), they sold for about 95% of list. What about the ones that didn't sell? For those to have sold, it probably would have required a lower price...under that 95% bar.

So, knowing absolutely nothing about the condos you're talking about, let's say they were at least 10% overpriced at the time they were on the market. Now, we know that prices have been declining. And the farther out from DC you go, in general, the sharper the decline. Just picking a number out of thin air, let's say the decline recently has been 2% a month. Might only be 1%. Or it could be more.

Pick up that pencil now. Let's say a condo comparable to the one you are looking at was on the market, but its listing expired (or the listing was withdrawn) unsold 3 months ago for $300,000. Using the process I suggested above, it was at least 10% overpriced. That means it was worth $270,000 or less. Now, it's been 3 months since it was worth $270,000, and its price has declined by 2% a month. Even without compounding the decline, a 2% decline is $5,400 a month, or $16,200 during the past 3 months. Subtract that from its real price of $270,000, and it could be worth about $253,800. That's the most I'd pay. I'd offer less. And that's without considering that its value probably will fall more in the next year.

Now, if you can find some comps, begin with that as your baseline and reduce by x% a month. And, to be on the safe side, I'd compare those two calculations--the comps, reduced, and the expireds, reduced. And go with the lower number. That's the maximum you'd consider paying. Offer less.

Now, you didn't ask, but others have: "Will this insult the seller?" Who knows? Who cares? You're trying to protect yourself in a volatile market with precious little to base your calculations on. And recognize that for the next couple of years you may have a very difficult time selling your unit.

Hope that helps.
0 votes Thank Flag Link Thu Jan 24, 2008
Don Tepper, Real Estate Pro in Fairfax, VA
MVP'08
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