In working with one of my buyers, we’ve been viewing homes around a popular upscale suburb. A new listing came on the market recently and while it offered many of the amenities of others we’ve viewed, its price was about 13% higher than the others … and higher than my buyer wants to spend.
Prior to setting up a showing of the home, I ran comps, checked pricing and purchase history for the home. We compared the interior photos of the home to other similar homes looking for something that would indicate a reason for the higher price. The home seemed ‘nice’, but not especially different than others that happened to be in-contract or that had recently sold for nearly $25K less than this home’s price … and they were larger homes. I also looked at the price per sq ft of those homes that had the same major amenities and size. Considering price/sq ft, this home was priced at an 18% premium to much larger homes on the “most expensive” street in the subdivision. We analyzed recent sales, in-contracts and active listings.
Every type of analysis that I did, indicated that this home was overpriced by $30-40K … AND that it really should be priced at a price that would fall within my buyer’s desired range. So I set up a showing.
The home was nice, but there were some things that weren’t quite as nice as the in-contract or sold homes. We weighed the pros and cons of this home versus a couple very similar recent sales. Our opinion of the price didn’t change. We just couldn’t find justification for the price.
So we submitted an offer at the price we thought it ’should’ be. Now in our market, homes typically sell within 96-97% of the list price - especially in this suburb. We knew that submitting an offer that was only 88% of the list price on a new listing would be viewed as a low-ball offer - something that seldom works in our market.
The listing agent and seller came back with justification for their price based on the price the seller paid for the home plus inflation rate for the many years the seller had owned the home. IMO, that is irrelevant in today’s market. One must consider what homes are CURRENTLY selling for.
If/when this seller gets the home in-contract at a price that the seller wants, will that contract be at risk when the buyer’s lender orders an appraisal? The appraiser will be more likely to do the anaysis in the way my buyer and I did - recent sales and $/sq ft of livable space plus major amenities. If the home doesn’t appraise for the purchase price, that buyer will either have to make up the difference in CASH or terminate the contract because they couldn’t obtain financing.
Appraisers are taking a much harder view in determining their values due to the “issues” Ohio has had with foreclosed loans. While sellers may be apt to view their pricing more emotionally, the appraiser will merely be looking at the hard numbers. Therefore, no matter how great the seller thinks their home is or how much the buyer wants to buy the home, the hard numbers must support the purchase price in order for the Purchase Contract to stay intact.
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Elaine Reese
614-825-8860Real Living HER
2 responses so far ↓
Ashley Drake Gephart // May 18, 2008 at 2:47 pm
Elaine - I just had this situation with a buyer. The appraiser was tight. I even thought the comps would justify the contract price but it come in $4000 lower. Fortunately, the seller did come down in price. I do think in light of recent foreclosures appraisers are not being so loose with the numbers.
elainereese // May 18, 2008 at 3:16 pm
You’re right, Ashley. Last year, Ohio’s predatory lending law made the lenders and appraisers play it much closer to the vest with their numbers.
Glad the seller came down the $4K for you … of course, at that point, they don’t have much choice.