Picking the right price range when searching for a new house is important because, otherwise, you could miss out on finding the right home. However, you also do not want to waste time looking at homes that do not fit your criteria because they cost more than what you want to pay. The only thing worse than finding your dream home and discovering that the seller will not bend on price is not finding your home at all because the price range you chose was wrong. Here is what you need to do as you go about your search.
Flex Your Price Point Ranges
Real estate agents do not always think about the way buyers search for homes when they accept a listing. By not pricing a home in the right price range, sellers might lose buyers who will never see the listing.
As the buyer, you should work with an expanded price range. For example, if your maximum purchase price is $399,000, you should not set up a property search with an upper-end price point of $399,000. By doing so, you will miss houses priced at $399,950 or $405,000, which you may still want to consider.
The following are the price ranges that buyers typically search for:
- $275,000 to $299,000. This does not include homes listed below $274,999 or above $299,001.
- $250,000 to $275,000. This does not include homes listed below $249,999 or above $275,001.
- $225,000 to $250,000. This does not include homes listed below $224,999 or above $250,001.
- $200,000 to $225,000. This does not include homes listed below $199,999 or above $225,001.
You can see the dilemma. Fortunately, many agents take listings outside of these price ranges, but you should expand the price range of your search, in order to locate all relevant listings.
Compare History of List Price to Sales Price Ratios
You should ask your real estate agent to print out the history of the past six months or more of sales activity in your targeted area. With that information, you should be able to compare the original list price to the final sales price. If the sales price is lower than the list price, you should calculate that difference.
By way of example, let us say that you have the information for all of the houses in that area in your price range. If the average sales prices were $315,000, but the average list prices were $329,500, the difference is 4.4%. So, if your maximum is $300,000, you could probably consider houses priced at $312,500 and submit a lower offer.
This formula works well when a lot of homes sell. With fewer sales, averages do not apply, but you can still figure out the discount percentages on each of those homes to arrive at a reasonable ratio to use.
Figure Out Seller Motivation
You should not expect a listing agent to tell you why the seller is selling, since agents who do so could be violating their fiduciary relationship to the seller. But, motivation is important, since some homes are sold at big discounts when extremely motivated sellers are involved.
These are sellers who are (among other things):
- moving due to job relocation;
- divorcing when selling;
- going into foreclosure;
- doing a short sale;
- looking for immediate cash;
- getting married; or
- buying another home contingent on selling.
Examine Market Temperature and Days on Market
Market temperatures can be hot, cold, or neutral. If you are home shopping in a seller’s market, you should know that sellers will most likely get their asking price. In some cases, sellers will receive multiple offers, resulting in a price higher than the list price. If your maximum limit is, say, $300,000, you should probably stick very close to a maximum price of $300,000. However, if it is a buyer’s market, prices are soft. This means most sellers will negotiate with you, and it leaves room for you to look at slightly higher-priced homes.
It is also important to know that real estate agents take overpriced listings. Those are typically the homes that sit on the market the longest. You should consider looking at overpriced homes that have at least 90 days on market. There might be nothing wrong with them but pricing, and they might be prime candidates for a big price reduction. If you get to them first, you may be able to beat the competition.