All home buyer’s want the same thing. A good deal on a home. But do you know a good deal when you see it? I had a buyer with an opportunity to purchase an investment property with a 9% cash on cash return and it was a good deal. Not a steal but a good deal. While attempting to purchase the home only if was great deal deal someone else recognized the value and purchased the home. Now my buyer has no deal.
The truth is most buyers will not purchase homes at steep discounts because the real estate market is efficient. If there were a lot of bargains to be had more buyers would flood into the market, increasing demand and erasing the opportunities. Plus why the buyer is looking for a “bargain” the seller is looking to sell if for as much as possible.
As a home buyer you need a benchmark to judge if you are getting a good deal or not. This benchmark is the market value of the home. Most buyers will purchase a home at market value and when lucky and prepared some buyers will be able to buy below market value. Here are three factors which determine the market value;
- Comps for sold comparable homes. As an agent one of the first things I do to determine value is look at the other comparable homes that have sold. If there are enough good comps it will be easier to focus on a value. The more unique a home is and the fewer comps there are the more it turns into an art versus a science.
- The motivation of the buyer and the seller. The value of a home is impacted by how motivated the buyer or seller is. If a home is just listed and priced well the seller won’t be motivated and the market value won’t drop. If a buyer has just lost out on two other homes they will be motivated to pay more and the market value could increase.
- The supply and demand of homes. Market conditions create a constant dynamic movement in the market, which can have a significant impact on market value. If there are few homes on the market and options are limited the market value will increase. The converse is also true. If there are too many homes on the market and the buyer has options the value will stay in check or possible go down.
When buying a home your agent should help you analyze all three of these and help determine a realistic market value for the property. Only then will you know if you are getting a good deal or not.