Determining Your Offer Price

Real estate is one of those industries that is very subjective, mostly because, unless you’re buying into new construction, no two products are exactly the same. It’s virtually impossible to put an absolute price on any one piece of property, since things like upgrades, décor, and its location can greatly affect the home’s value.

Think of how pricing is handled for other retail exchanges. New cars come with certain options that bring the sticker price to a certain level. All the models on the lot with those same options are priced the same. Take away one option, and the price goes down, and it goes down a particular amount. The same is true when you add an option – the price goes up, and by a set amount. A used car will take into account the age of the vehicle, the mileage, and normal wear and tear, and pretty much all vehicles that fall into the same category will get the same offering price. This is why you can go online and easily find the asking or selling price of even a pre-owned vehicle, without a dealer ever having seen it.

Ask any real estate appraiser, and he or she will tell you that their business just isn’t like that. Trying to appraise a home is a lot of art along with the science, and you can be told as many different appraisal prices as there are appraisers. Every detail of a home, every bit of square footage, every new appliance and bit of tile – all of these affect a home’s price and make it completely, uniquely different from one even next door to it.

And so what is the point to all of this? Simply put, a home’s offering or listing price is something that should be thought of as completely negotiable. Very often they’re completely over-inflated and don’t truly reflect the value of the home. Buyers often don’t know the difference between one home and the next, and usually assume that the asking price is at least “in the ballpark” of what the home is actually worth. This is important to remember when talking about high-end property especially, as the difference between the asking price and the real price you should pay can be in the millions.

How do you negotiate a home’s asking price when getting ready to submit an offer?

Compare, compare, compare.

First, you look at recent sales of similar properties to come up with a price range. These should be properties in the same general area, with comparable square footage and amenities. If the home you’re considering buying has a pool and tennis court, you need to compare another house with a pool and tennis court as well. The landscaping and other outdoor features should also be comparable – think of fountains, ponds, gazebos, specialty gardens, and so on.

You need to also take into consideration any upgrades or improvements made to the home that also inflate the value. Restaurant-style kitchen appliances, marble floors, these types of items of course will add to the price. If you’re comparing one home with a lot of upgrades to one that hasn’t been improved in years, of course you’re not going to get a fair comparison number.

It’s sometimes helpful to make a list of comparable properties along with their various amenities and compare it to the marketing material from your current realtor. How close are the two when it comes to amenities and upgrades? By writing these down, you can get a more accurate feel for whether or not the numbers are fair.

It’s also important to consider any improvements or upgrades you may need to make to the home yourself. Even the priciest of homes can fall into disrepair, or be decorated according to the eccentric style of the current owners. If the home hasn’t been updated in decades, you have a lot of work and expense ahead of you. Appliances that need to be replaced, yards that are in disrepair, a pool that hasn’t been used – or cleaned – in years are not uncommon problems with even the priciest of homes.

Comparable sales are an important part of this process, which are easily accessed by a real estate agent. Sometimes the sales numbers are difficult to get by a private citizen, so don’t hesitate to ask your real estate agent for these numbers.

The important factors.

It’s said in the real estate industry that kitchens and bathrooms sell homes, and this is true even with the high-end real estate market. Unfortunately some people get caught up in the idea of purchasing in a particular zip code or just look at square footage of a home and fail to really look at the “nuts and bolts” of the living space.

Cosmetic changes especially can be deceiving. New carpeting and a fresh coat of paint go a long way toward enticing buyers to overlook the important features – great for the seller, but bad for the buyer. So it’s important to look past the surface changes and really see into the quality of the home itself.

It’s very important to make an accurate estimate of a home’s major features and functions, especially when it comes to major appliances and things like plumbing and wiring. Is it copper plumbing? Has the wiring been upgraded? Will it support such things as your high-speed internet access, a media room, a home theater, and so on?

What about the kitchen appliances? Surprisingly, in many high-end homes, the appliances can be ignored, even for decades. Sometimes homeowners just get used to having what they do, and don’t know what upgrades are out there. Or, again, they spend money on the cosmetic changes – new countertops, new cabinets, etc. – and forget about the big-ticket items.

Will you need to replace any of the major kitchen appliances, including the stove, refrigerator, dishwasher, and so on? What about the washer and dryer – how old are they?

When you make an accurate estimate of all of these factors regarding a house and any amenities it currently offers, along with any repairs or upgrades it will need, you’re better armed to negotiate an offering price that’s more accurate and fair. Remember, don’t get taken in by the “sticker price” or simple offering price, even of a home in the high-end market. Prices are negotiable, and you should definitely make sure that, if you’re paying top-dollar for a home, you’re getting a home that’s worth every penny.

Contents

• How Much Mortgage Can You Afford?
• Buying a Good Vacation Home
• Buying a Home for Resale Purposes
• Claremont is the Top Earner – and Most Expensive
• Commercial Real Estate Still a Safe Bet
• Determining Your Offer Price
• Empty Homes for Sale
• Exercise Caution When Flipping
• Expensive and Alternative Homes
• Figuring Property Taxes for the High-End Real Estate
• Florida’s High-End Real Estate Goes Limp
• Foreign Investors and the Hamptons
• German Investment in U.S. Real Estate Creates a Bidding War
• Getting Wealthy From Real Estate Investing
• Going Green
• High-End Goes High-Tech
• High-End Investors – Why Immune to the Real Estate Crunch?
• High-End Real Estate Feels the Crunch?

• High End Property Site Map