I want to Buy Homes and Sell Homes but what is a Fair Price
I am a Real Estate investor in search of properties to buy and sell. I want to purchase properties at a price that is “fair” to the buyer and seller. However, establishing this price is the difficult part. To the investor, it is an unemotional decision. The price is based on facts and figures that allow the investor to make a small profit. To the seller, more times than not, there is a lot of emotion involved in addition to facts and figures. To a retail buyer and seller, it is a home, not a property. This can lead to a difference in opinion as to the value of a property/home. Working through these differences to reach agreement is key.
I can still remember the first home my wife and I bought together. Finding that perfect house that met our needs and budget. Reaching agreement on what we could afford to pay. The feeling of pride when we closed. Starting our family together. I understand how emotion sets in relative to a retail buyer or seller’s point of view. I have been there!
In today’s world, traditional methods and use of the internet have made available many sources that you can utilize to get an opinion on the value of a property and what it is currently worth. A Real Estate broker can give you an estimate of the value of the property. Zillow.com can give you an “zestimate” in matter of seconds. You can also do a price per square foot method. There are many more but these are most likely the more popular methods being used.
Zillow “Zestimate”
The Zillow “Zestimate” can be accurate or can be highly inaccurate. Each property has its own unique characteristics but Zillow’s “Zestimate” is based on mathematical formula. Therefore, the more common the property is relative to others around it, the more accurate the “Zestimate” can be. Zillow doesn’t know the condition of the property in most cases. It doesn’t take into account that one property may be run down on a busy street with a poor view while the one that just recently sold one block over was completely remodeled, on a quiet street, with a good view. Therefore, the Zillow “Zestimate” should/can be used as a starting point but adjustments need to be made. Zillow may be accurate on one property and highly inaccurate on another property.
Price per square foot
The price per square foot approach has its pluses and minuses as well. The same reasons the Zillow “Zestimae” doesn’t work applies to the price per square foot approach as well. You could argue the “Zestimate” is more accurate since the mathematical model takes more things into account. With the price per square foot method, you can quickly get a value estimate based only on size. Property condition is not taken into account. At best, this may be a rough guideline on property value
Comparative Market Analysis (CMA)
A Real Estate Broker can do a Comparative Market Analysis (CMA) that looks at properties that have recently sold, are active on the market, and have sales pending to help determine the value of a property. A good Real Estate Broker will work through a systematic approach that compares key property features including property condition, number beds, number baths, number of rooms, garage size, view, finished square footage, neighborhood quality etc. The Broker would then set down with the seller and explain how the price was obtained, have pictures to show property differences, discuss neighborhood conditions etc. The Broker and seller then agree on a price to list the property for. This approach is most similar to a professional appraisal. If the Real Estate Broker is representing the buyer, a similar approach is used with the buyer to help the buyer make a good offer for the property
The Comparative Market Analysis (CMA) approach is best used in the Real Estate Investment business as well. This gives the best estimate of the value of a property. It provides facts and figures that can be discussed logically. Most investors concentrate on properties that need to be renovated. After the property is renovated, it should be in a condition it can be sold at the price of other homes that have sold or are on sale in the neighborhood. When buying a property, the investor should estimate the repair cost to renovate the property and discuss the cost of repairs with the seller. Then a fair price can be discussed.
As for the emotion involved when selling a property, it will be there. The investor buyer needs to be aware of this and sensitive to that. However, the facts and figures have to prevail. The investor will invest when they can be compensated for the risk they take by being able to make a small profit. The seller gains in this process as well. Investor’s pay cash and can take possession of a property much faster than traditional means. By sharing and understanding the property comparative market analysis, both the investor and seller can reach agreement on a fair price.