[Image courtesy of Mark Moz, link: https://flic.kr/p/iQncn8]
It's easy to fall for a house, but it pays to remember that a mortgage is not like a fleeting crush. It's a serious, long-term commitment. With the housing market heating up again, buyers may discover that the season of real estate bargains is over. Sellers may be more comfortable pricing their homes on the higher end and hoping for the best. So, how can you find out what the "right" price is before you make an offer?
Here are three tips that can help you determine if the house of your dreams is really worth the money.
Tip #1: Do the Comps
"Comps" are comparisons of other houses that have sold in the area. Start by asking your buyer's agent to generate a list of homes within a $50,000 range of your ideal home price that have sold in your target area in the last six months. Make sure the realtor includes the asking price, the final sale price, and how long each home sat on the market. This will give you an idea of what is selling and how much bargaining room there is in this market.
Once you have your eye on a specific property, use your list of "comps" to compare similar homes that have sold. This is very valuable information that you can use to generate your own idea about a property's value. For instance, you can figure out the average price per square foot. You can compare the sales price to the home's assessed value (you can find this information usually through a town's municipal website or lister's office).
While it's not a hard and fast rule, making this kind of comparison can help you to determine whether a home's asking price is on target and how to make your best offer. Just be sure to account for differences between properties--like a desirable neighborhood or waterfront property.
Tip #2: Collect Your Data
There are factors you need to consider beyond just the home itself.
The first is the real estate trend in your target area. It used to be that getting historical sales data was difficult. Your realtor would have to generate a lengthy report for you. Today, real estate web sites put historical sales data at your fingertips. Use this to your advantage. Keeping in mind the market crash of 2008, do a quick survey of historical sales data to assess the overall trend for your area. Are home values going up? Going down? Holding steady? Is your target town a safe bet or is it a neighborhood in decline?
Schools are another important factor--even if you don't have kids. A so-so school district can spell trouble for your home's resale value. It makes sense to visit the schools in your desired area before you buy.
Real estate taxes are the final factor to consider. You want to think about where they stand now as well as what they are poised to do in the future. For instance, if you happen to learn that a town is planning a major reassessment of property values, you might be in for a major bump in your tax bill. It's not a deal breaker, but you can use this information when you are negotiating sale price.
Tip #3: Ask the Neighbors
Curious if a quiet country lane is about to become the major thruway for a massive condo development? Wondering if there is a long-simmering border dispute on the block?
There is only so much information you'll get about a house from a website or even a walk through. If you really want to get the low down on a property, go meet the neighbors. The worst thing you can do is take on a big mortgage only to discover that your dream home is really a nightmare. Checking in with your future neighbors can alert you to all sorts of potential pitfalls.
Worth the Mortgage?
Finding a great house can make your heart flutter and your head spin. It can make you feel anxious or pressured to seal the deal fast. That is when people start making bad decisions. Crunching the numbers and meeting the neighbors will help you put your emotions aside. And, it will help you to make an offer that really makes sense.