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Other Factors Affecting Your Offer
There are many factors that
can affect the offer you put on a potential home. They can range from home improvements to the mood of the
seller. All of this is a lot to
internalize, but you can make an informed decision if your tackle these issue
one at a time.
Home Improvements
Most people think that home
improvements are a sure-fire way to increase the value of a home, but if you
are buying one, you couldn’t really care less what the owner paid the
improvements. It only matters what
those improvements are worth to you as the buyer. So don’t be suckered by the plight of the owner who says, “yeah,
but I just put in a new bathroom.” The
decision is up to you.
The following is a list
projecting which home improvement initiatives often produce the best results
upon resale value. Naturally these
numbers are not rock solid. There are
many factors including your local housing market and what kind of improvements
you undertake.
Kitchen Remodel
(minor)-125%
Basement Remodel-98%
Bathroom
Addition-96%
Kitchen Remodel (major)-92%
Bathroom Remodel-90%
Exterior Paint-90%
Master Bedroom-86%
Market Value
Market Value vs. Appraised
value will have a big effect on what you eventually end up paying for the home,
so you should make your decision based on this.
Here are the basic definitions:
Market value:
This
is the price that the people looking at your home are willing to pay for
it. If just about everyone coming
by your home says that they are willing to pay $200,000, then the market
value of your home is $200,000.
There isn’t a whole lot you can do to change that.
The
tricky thing about market value is that it can take into account factors
that are completely out of the seller’s control. For instance, an elderly couple walks into a new home and
instantly it reminds them of the home they first lived in. Nostalgia in this case could make the
home worth thousands more, simply for that reason.
Or,
maybe the husband is a little nervous and feels that the home is
haunted. This may seem like a
joke, but you would be surprised to find out just how often someone claims
that ‘getting bad vibes’ from a home is a reason not to buy it. In this case however, no matter what
the price, that customers is not going to buy the home.
Appraised value:
The
appraised value is basically what the bank thinks your home is worth. This can include everything from what
neighborhood you live in, to how many fixtures you have in your
kitchen. The appraised value tends
to be unbiased, because the bank is not looking to bargain with you. They need an accurate assessment.
It
is very very rare that the appraised value of a home is the same as the
market value. Why is this?
Essentially
the appraised value of your home is determined in order to justify the
rate of the mortgage loan. This
price is based on historical data and previous sales comparisons. That means sales of similar homes in
the past six months.
You
may encounter some problems if there is a large gap between the appraised
value of the home and purchase price being offered. For instance if a buyer decides that
they absolutely must have a home and they are willing to pay for it, they
mat be in for shock when they discover what the down payment is.
If
the purchase price is much higher they bank may determine that the
apprised value of the home is not enough to cover the requested mortgage
they will often raise the down payment.
This
situation may not emotionally deter the buyer, but, coming up with an
extra 2 or 3% of the purchase can translate into thousands of
dollars. And as we all know coming
up with cold hard cash like that can be a real problem.
Therefore, be aware of what similar appraised vales
of home in your area are. This will
lessen the shock of the purchase. Also,
if you can afford the initial down payment you will end up paying less for the
home in the long run, providing the bank gives you the mortgage rate that you
wish. In this housing market that is
quite possible.
Market Conditions
While market conditions are
pretty much out of your control, you can make them work for you if you have the
right attitude and technique. Basically
there are two different kinds of markets, and you have to manipulate both
differently to come out on top.
Seller’s Market
Suring a seller’s market basically there are
more buyers than there are properties.
This means that the moment a home goes on the market there will be
many offers immediately. The
amount of offers and their seriousness then affect the price of the
home.
In these instances a home will often go for more
than the asking price, and even a couple thousand more dollars on your
offer can be the difference between getting the home of your dreams and
having no home at all.
Buyer’s Market
Obviously the Buyer’s market if the
opposite. This occurs when there
are far more homes for sale than people who are willing to buy them. A buyers market I a little more complex
than a seller’s market. Many
people, unless they are in dire straits will not sell their home if market
conditions are poor.
If they do have to sell, they may only get a few
offers a month, and even then they will be less than the asking price. In
this situation you must really know how to negotiate. It is also very important to know why
it is a buyers market. Is there
something wrong with the neighborhood?
Are there any planned developments that may decrease the resale
value of the home? Toxic waste
spill? These are things you must
know.
Property Conditions
Obviously, the state of the
poroperty is going to affect what your offer is. A quck glance around is not going to give you the information you
need to make an informed choice. The
following is a chacklist to use to make sure that you have all of your bases
covered.
General Questions to Expect on Property
Condition Disclosure Form
How long have you owned the property?
How long have you occupied the property?
What is the age of the structure or structures?
Note to buyer – If the structure was built
before 1978 you are encouraged to investigate for the presence of lead
based paint
Does anybody other than yourself have a lease,
easement or any other right to use or occupy any part of your property
other than those stated in documents available in the public record, such
as rights to use a road or path or cut trees or crops?
Does anybody else claim to own any part of your
property?
Has anyone denied you access to the property or
made a formal legal claim challenging your title to the property?
Are there any features of the property shared in
common with adjoining landowners or a homeowner’s association, such as
walls, fences or driveways?
Are there any electric or gas utility surcharges
for line extensions, special assessments or homeowner or other association
fees that apply to the property?
Are
there certificates of occupancy related to the property?
The Seller
It is always best to know the
motivation of the seller before you begin any negotiations. This is the best way to know just how far
you can push them in the negotiations.
The following are simple questions to ask them to check their pulse:
Why are you selling?
What did you pay?
What about the neighborhood?
Has the property ever been rented?
What are the local amenities?
Can I conduct my own inspection?
Can I look around?
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