By Megan Gates
Purchasing a home can be a complicated endeavor, making it critical that you do as much research as you can to understand why a home is priced the way it is and whether or not it’s the right home for you.
One of the key steps in the home buying process is to work with a real estate broker, since they will have done a lot of research already. If you can explain what you want in a home, they can help find homes that meet your criteria since their job is to understand the market and explain a home’s value, price, and cost. Of course, to best utilize a broker, you need to know what you want in a home and what value, cost, price make sense for you.
Dottie Herman, CEO and President of Prudential Douglas Elliman, suggests that price, cost, and value are the three most important aspects of buying a home. On a recent episode of her radio show, "Eye on Real Estate," she said that value is “what you think the home is worth, based on how you are going to use it,” perhaps the most important of the three aspects.
Understanding what makes a home valuable to you will help you define an appropriate cost and price. For example, if you have kids and are looking for a home within walking distance of a school, your value of a piece of property near a school might be higher than for someone else who does not have children.
Cost, says Herman, is “a measure of the past.” In an average selling situation, sellers list their house at a cost that reflects for how much they bought the house combined with the costs of improvements they have made to the home.
However, what they paid to buy the house and the improvements they made are reflective of the value they place on the home – not necessarily of the value to you as the buyer.
Lastly, once you know what value a home has to you, as well as where the seller is coming from in terms of their cost, you must consider price. As Dottie Herman explains, “Price is what the home should be worth today.” A home’s worth today depends on its fair market value, that is, the value placed on it by the collective market as opposed to the value of any individual buyer.
Determining the fair market value of a home and how it should be priced is an aspect in which a broker can be very helpful. They can help research comparable properties in the area and find out how much they sold for.
In addition, look for some key things on the property that could increase or decrease the fair market value, and thus the price, of the home. These include general wear and tear, any view that the property has, the location, and the general feel of the neighborhood.
After collecting all this information and discussing it with your broker, you will be much better equipped to know the fair market value, the cost to others, and how both of those affect the seller’s asking price. Most importantly, you’ll have a much better feel for whether the home is a good value for you.
Megan Gates is an active blogger who provides written work pertaining to home improvement, the latest architecture, design and fashion. She also writes on behalf of Elliman Real Estate. Follow her on twitter @MEGatesDesign.