I was sitting across the table from potential clients who were interested in buying a home in Los Altos. They were interviewing me to see if I was the “One” to assist them in locating and securing the home of their dreams.
They asked me a series of questions about my qualifications, experience and how I would best assist them. They also made it clear that they wanted to buy a home substantially “under market.” In short, they wanted a deal!
I asked them to describe “deal?” There was a long pause followed by blank stares as they looked at each and then finally me. The husband responded, “we’ll know a deal when we see it.”
Hmm, interesting. This gave me an opportunity to discuss real estate opportunities in terms of “market value.”
How does a buyer determine a home’s market value? The seller puts a list price on the home, but it is the buyer who truly determines the home’s market value vis-a-vis what the buyer ends up paying for the home.
To begin with, a buyer must know the local real estate market and how the home he/she wishes to purchase compares with others that have recently sold.
To determine this, buyers need to do their homework. Is the local real estate market (drill down to the neighborhood level) rising, falling or staying even?
Once the buyer gets a feel for the local market, it is extremely important that the buyer’s agent provide the buyer with a pricing analysis based on local recent home sales.
The buyer should ask his/her agent to provide him/her with a Comparative Market Analysis (CMA) that details the current market trends and includes recent neighborhood sales of homes similar to the subject property. This is similar to the CMA a seller uses when they price the home for sale. The buyer should use the CMA to help determine an offer price.
Note: If the market is rising, a buyer might think about an offer price on the higher end of what the CMA indicates. If the market is falling, the buyer is much better off discounting the offer price.
The basic premise in getting a deal in real estate is knowing the local real estate market and home values. Without this basic yet vitally important information, buyers will continue to stare blankly into space when asked to describe their ideal home purchase!