Making sense of house values

New homebuyers always wonder what the best price is for the house they want to buy. They worry that they’re paying too much these days. After all, they know Florida prices typically dropped at least 35% since the peak in 2006. Because they may not realize that current prices reflect that drop, some buyers expect further price cuts from sellers. When they are not forthcoming, these buyers are upset.

On the other hand, recent economic indicators show that prices have risen an average of 2.4% nationally, if we discount the egregious drops in Detroit and Las Vegas. So real estate agents gently drop hints that based on these current figures, home sellers are hanging tougher. Home sellers also read this news. As a result, the 15-20% discount is dead in the under $300,000 market. Discounts of 3-7% are becoming the rule.

Then, there’s another set of figures that just came out. According to Moody's Economy.com, nationwide housing prices will decrease approximately 16% by the end of this year. But by 2012, prices will rise to 3.7% above 2009 levels. And now for the good – or maybe not so good – news, within 5 years they will move back to pre-2009 levels.

With this plethora of information beating a path to your computers screens every day, how can you determine the true value of the property you want to purchase? It’s not easy, but there is still a way to understand the relative value of the property – that is, if it’s not already in foreclosure or short sale.

For those who are eager to purchase a home and want a response to their offer within 48 hours, it is best to purchase a home that is still in control of the current owner. Short sales will take from 45-60 days to respond. Foreclosures may respond within 3-5 days. However, any problems in those properties belong to the buyer. That bargain may have a large number of expensive problems that need fixing.

While you will learn what those problems are after you pay an inspector to check out the house, you may discover that your bargain is anything but. However, when you deal with a seller who lives in the house and who is not upside down, you may be able to create a fair market price for the house.

When you purchase from a seller who is current on his mortgage, you have the opportunity to negotiate. But even if you can’t negotiate to the extent you desire, you have the opportunity to learn about the house, discover what improvements the owner may have made, and find out why he or she wants to sell. That reason may have to do with the fact that the property needs work and the owner doesn’t want to spend the money, or it may simply be job or family related.

However, once you check the relative prices of homes in the area that are for sale, and the prices of homes in that area that have recently sold, you will be able to get an idea of what the house is really worth. The simplest way to determine value is to calculate the price per square foot of homes in the immediate area that have sold within the last 3-6 months.

Once you have that number, consider the amenities in the property itself, because every home is different. Is there a pool? Are the kitchen and baths updated? Are the carpets worn? Is there ceramic tile on the floors? Calculate the cost of the work you’d have to do to bring the house up to par with your desired living standard. Now you can start your discussion with the owner.

When you purchase a short sale or a foreclosure, you may find that the prices of these properties are somewhat less than those asked by a home owner who is not in debt. So you start to think you’ve found a really good deal. But the problems built into the short sale or foreclosure may very well eliminate the price advantages. You’ll still need to check current asking prices and past sale prices. And you’ll still need an inspection to verify the current condition of the property.

For example, in Florida, a house that’s lived in runs its air conditioning on a constant basis. This tends to eliminate mold and mildew build-up, two health hazards that can be very expensive to eliminate. Because short sale and foreclosure homes that are empty often have had their electricity and water turned off, mold and mildew have a greater chance of forming within the walls.

Once you are armed with sufficient knowledge of the neighborhood and you have thoroughly looked through the property that has whetted your appetite, you are then ready to come to a value judgment. If you believe the property is overpriced for its neighborhood, either you negotiate a lower price or you keep looking.

If you see the price is fair, and you have seen enough homes to know this is the one in which you’ll be happy to live, you make an offer that you think you and the seller can live with.

The owner may accept or may counter-offer. This is the joy of negotiation. In today’s market, be prepared to pay close to asking price on houses in the $300,000 and under range. If the owner accepts without a counter-offer, be pleasantly surprised and tell all your friends you’re moving.

Written by Marc Jablon, Realty Associates
marcjablon@yahoo.com / 561 / 213 – 6139
www.MarcJablonHomes.com