On the market for a new house? Purchasing a new home is incredibly exciting, but it can also be daunting. Very daunting. How much can you afford? What will it cost? Is it a good investment? How much should you offer? The last thing any of us want to do is overpay for a home or invest our money poorly, so today we’re tackling a very important question: how much is that home worth?
Here are six steps to get you there:
1. CONSIDER THE OBJECTIVE VS. SUBJECTIVE VALUE TO YOU AS THE BUYER.
Objective market value and the value to you as the buyer can differ considerably. For example, if a home comes with a parking spot that is too small for most cars, but will fit your Mini Cooper perfectly, then that feature will make the home worth less objectively to others, but it won’t necessarily be a deal breaker for you (though do remember it will affect resale value). Most home-buyers in NYC and the surrounding areas don't have a yard as a non-negotiable feature, but in the suburbs you might. This leaves fewer homes to choose from and having to accept that a yard comes at a price.
2. DO SOME COMPARISON SHOPPING.
Comparative market analysis is the most widely used mathematical method of estimating the real value of a property. Put simply, it’s like comparison shopping. It takes into consideration homes that have sold recently that share characteristics with the home that you plan to buy. While your listing broker will share comps with you, you’ll want to do some research on your own.
While doing a comparative market analysis may feel like homework, it’s completely worth the effort. Here are some techniques that will help you figure out what your home is worth:
Search your area for recent home sales. Generate a list of homes sold within the past 12 months. If you can come up with a list of homes sold in the past 6 months, even better. Target homes with a profile most similar to the home you’d like to purchase. You want to find homes with the same number of bedrooms and bathrooms. You also want these homes to have similar amenities, and distance to the metro, etc. Proximity is really important in real estate, especially in urban areas like NYC. Look at homes within as small a radius as possible. In NYC, if homes are one mile apart, they could be in a different city altogether!
Look at the price per square foot of each home. You should start to notice trends. For example, if two homes look very similar but Home A has a newly remodeled kitchen and Home B still has the original, you might be able to calculate a price per square foot on the value of a new kitchen. Maybe you think it would cost you $30K to renovate the original kitchen in Home B to the same standard as the kitchen in Home A. If Home B is 1,500 square feet, then you would be willing to pay an extra $20 per square foot to have an upgraded kitchen. ($30,000 divided by 1,500). These calculations help you play detective to figure out why different places sold for different prices per square foot.
3. UNDERSTAND VALUE FACTORS.
Two homes of the same square footage may have different market values and have sold for very different prices.There are a number of factors that can contribute to this, and understanding the different factors can help when it comes time to make an offer on your own home.
Timing: Was the market hot? Was it a popular time to buy in the area?
Renovations: Did the receive any major upgrades? Were any bathrooms or kitchens renovated?
Homeowner’s association (HOA) or maintenance fees: If these are really high, buyers will probably want to pay less for the home itself.
Amenities: Is there outdoor space, common space, washer and dryer, garage, driveway, street parking, or central air? Most importantly, how do these factors compare between the two houses?
Condo vs. co-op: What are the rules around renting and sub-leasing?
Location, location, location: What’s the neighborhood like? Is it on a nice block and /or close to public transportation?
4. SET UP ALERTS.
Set up an alert on your phone so you can see when other homes come on the market and sell in the area. Remember to look at the sold price, not the list price. And pay attention to the difference between those numbers, as that can factor into calculations for your own offer. Are the homes in the area routinely going for lower than asking price? If that’s the case, the market values may be slightly inflated or the market is cooling off, and that’s something you’ll want to know before you put in an offer.
5. TAKE A LOOK AT TRENDS.
It’s also a good idea to take a look at overall market trends. Determine whether you’re in a buyer or seller’s market. Chances are, if it’s a buyer’s market, your broker will tell you that right off the bat, but it’s also a good idea to do a little research yourself. It’s also worth considering how seasonal trends affect the market. Generally speaking, as the weather gets better, there are more buyers searching for new homes. But at the same time, there are more places for sale during peak seasons, so there are more options and inventory. If you look for a home during the winter or over the holidays, you may discover highly motivated sellers. Given that it’s not an ideal time to sell a home, places are usually listed for a specific and concrete reason. Highly motivated sellers present great opportunities for interested buyers!
6. DECIDE ON A PRICE PER SQUARE FOOT.
Based on the information you’ve collected, you can work with your list of subjective needs and the market value of the home to decide on a price per square foot that you would like to offer for your desired home. Multiply that by the square feet of the home and you have your market price. If the number you come up with is lower than the listing price, you may not get the place, but at least you have an idea of what it is worth to you and how you value it. That’s a powerful place to come from! Compare that feeling to how it must feel to overpay for a home and realize you don’t value it at the price you paid for it. And don’t forget: the longer a home has been on the market, the more likely it is that it’s overpriced. Present the offer that accurately represents how you value the home and see what happens!