Know the
Market before You Buy
The asking prices of most
homes on the market indicate the current state of the market, and usually
mirror the prices for which other similar homes in the area have
recently sold. In deciding upon a selling price, a home-seller
must establish a balance between the desire to draw the highest offer
and finding a price that will be reasonable enough
to attract an appropriate pool of prospects, and competitive offers.
While most selling agents counsel their clients to consider
this equation when pricing their home, keep in mind that some homes
are not properly priced.
It’s important to educate
yourself about the current market before approaching the purchase of
a home. The market will always influence a property’s value,
regardless of the state of a home, or its desirability. Here are
the types of market conditions and how they may affect you:
- Seller’s Market:
A seller’s market is
considered a “hot” market. This type of market is created
when demand is greater than supply—that is, when the number of buyers
exceeds the number of homes on the market. As a result, these
homes usually sell very quickly, and there are often multiple offers.
As a buyer, you need to consider that many homes will sell above the
asking price; in other words, you may have less room to negotiate, and
may encounter competing offers. Though most buyers want to get
a home for the lowest price possible, reducing your offer could mean
opening the door for another buyer instead.
- Buyer’s Market:
A buyer’s market is a
slower market. This type of market occurs when supply is greater
than demand, the number of homes exceeding the number of buyers.
Properties are more likely to stay on the market for a longer period
of time. Fewer offers will come in, and with less frequency.
Prices may even decline during this period. As a buyer, you will
have more selection and flexibility in terms of negotiating toward a
lower price. Even if your initial offered price is too low, the
seller will be more likely to come back with a counter-offer, so you
can begin the process of negotiation.
- Balanced Market:
In a balanced market, supply
equals demand, the number of homes on the market roughly equal to the
number of buyers. When a market is balanced there aren’t any
concrete rules guiding whether you should make an offer at the higher
end of your range, or the lower end. Prices will be stable, and
homes will sell within a reasonable period of time. You will have
a decent number of homes to choose from, and may encounter some competition
for offers on the home of your choice, or none at all.
Before you make an offer
to purchase a home, establish whether the current market is a Buyer’s,
Seller’s, or Balanced market. Also, evaluate the price similar
properties have sold for in the area, and the length of time these properties
spent on the market. Determine how the home you’re considering
compares to these other sales. Is this one over-priced, under-priced,
or a fair price? By establishing this information prior to making
an offer, you will be in a position to negotiate the best price for
the home and be prepared for any additional opportunities that may come
your way.
Keep in mind, a realtor
is trained to provide clients with this information about the market,
helping you make the most informed decision possible. The right
realtor will guide you through the ups and downs of the market and keep
you up-to-date with the types of changes you might expect. These
realtor resources and connections will prove to be invaluable as you
navigate the real estate market.
- Location:
The proximity of the home
to amenities, such as schools, parks, public transportation, and stores
will affect its status on the market. Also, the quality of neighbourhood
planning, and future plans for development and zoning will influence
a home’s current market value, as well as the ways in which it might
change.
- Property:
The age, size, layout,
style, and quality of construction of the building will all affect a
property’s market value, as well as the size, shape, seclusion and
landscaping of the yard.
- Condition of
the Home:
This includes the general
condition of the home’s main systems, such as the furnace, central
air, electrical system, etc., as well as the appearance and condition
of the fixtures, the floor plan of the house, and its first appearances.
- Comparable Properties:
Examine the selling and
asking prices of similar homes in the neighbourhood. Ask your
Realtor to prepare you a general market analysis of the neighbourhood
you’re interested in, so you can determine a range of value for a
particular property. A market analysis will provide you with a
market overview and give you a glimpse at what other similar properties
have been selling for in that area.
- Market Conditions/
Economy:
The market value of a home
is additionally affected by the number of homes currently on the market,
the number of people looking to buy property, current mortgage rates,
and the condition of the national and local economy.
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