Analyzing the individual property and the market is important. The better informed a buyer is about both the property he or she is buying and the market trends for that neighborhood and type of property is important because no one wants to pay too much. On the flip side, you want to offer enough (or more) to make sure you get the property you want. Here is information for home buyers who want to pay the right amount.
Selecting the Right House
After looking at houses, clients must eventually decide whether or not one home stands out above the rest as the “right” fit for their requirements. There really is no perfect house; sometimes compromises have to be made. This is where I will ask you whether the house is 80 percent the right house.
When we have found the right house and the clients are ready to make an offer, this is the point at which we must do our homework carefully. Once you decide on a particular property, we can analyze that listing to see if it really is a good fit financially. If not, then the client must select a different property.
What price to pay really should not be a scary thought, because we have many tools for analyzing the market. At this point we go back to the office to work. When the market is favorable for buyers, this time can be more leisurely.
However, in the past few years the market has shifted dramatically to a seller’s market at almost every price point. This means that buyers need to understand the market trends prior to looking for houses so that they will be able “to jump on a property” when they find it. Multiple offers have become the norm in many neighborhoods at almost all price points for homes in good condition that are “priced right.” Buyers will therefore need to be fully qualified to purchase before going out to look for properties.
Reviewing the Seller’s Disclosure Statement
We begin by reviewing the Seller’s Residential Property Condition and Disclosure Statement (if the Buyer has not already seen it). The Buyer will have to sign the disclosure statement and include the signed disclosure with the written offer for the home.
If the current owner has to google the home address to know where the house is, then they are not required to make disclosures. In such a case, a disclaimer form will be provided in lieu of disclosures. If home owners have lived in the house or have worked on the house enough to be able to disclose information about it’s condition, then they must disclose what they know about the house. Owners of vacant land are not required by law to disclose the condition of the property.
Corporate owners will require corporate addenda to be signed to cover their assets. The Buyer should review these addenda prior to making an offer to purchase a property.
Reviewing Tax Records
The property’s tax records give public information about the size of the property, the legal description, and the owners’ names. The records often also tell us when and for how much the sellers bought their home. We also use the tax records to verify the name of the subdivision and the school district.
Reviewing the Flood Plain Status of the Property
We also use the tax records with links to FEMA flood zone maps to verify the flood zone status of the property. This is very important before making an offer. In fact, it is best to know the flood zone status before even looking at the property. Often a property can be eliminated based on the fact that a home will require flood insurance if a mortgage loan is involved and the property lies in the 100-year flood plain.
Googling the Property
A period of due diligence is granted after the contract is signed during which time the client can inspect the property in detail. However, a lot of headaches and heartache can be avoided if clients go online before making the purchase to check out the neighborhood and the environs.
The buyers will review flood plain maps, topographical maps, geological surveys, oil and gas well locations, highway maps, aerial photographs, neighborhood websites, newspaper articles, environmental impact statements, and legal records online to find as much information about a property prior to making the offer. All kinds of resources are available to clients to help them confirm their decision and help them analyze a home’s worth.
Analyzing Where the Market Has Been
We will look at the archival history of the home’s marketing in the local MLS records, look at the NAR RPR report (if available), and analyze neighborhood statistical data. I give buyers copies of public information that is readily available to sellers when they put the home on the market. With this information in hand a buyer can make an informed decision as to how much they can expect to pay for the house. Many buyers also use other online resources, which may or may not be accurate or helpful.
The first thing we do is check the comparable home sales in that subdivision to see if the home you want to buy is priced fairly and to see how its position in the market relates to others similar to it that have already sold in the last six months. This CMA (comparable market analysis) tells us the price range of sold properties in the area (those homes in the neighborhood that have already closed), the average time on the market (the DOM), and the average sales price per square foot.
In some cases there will not be enough houses that have sold. I find out how long the property has been on the market or if there have been any price reductions during the listing period. This history of the listing is public information. I also try to find out if there have been any other offers on the property, and what the motivation of the Seller is; however this information may not be available unless the seller has given express written permission to the listing associate to reveal their motivation and details about how much they will accept for the house.
One thing that buyers quickly discover is that they themselves become amateur appraisers. After a day out, buyers begin to know instinctively if a house is overpriced. Fortunately, since our market has many subdivisions and master planned communities, there are many similarities among houses and comparisons can be made easily. There is no point in overpricing a home, since it won’t appraise when the buyer goes to get a mortgage. Therefore, there is a smaller margin of pricing over what an actual market price would bring. The greater challenge arises when we are dealing with unique properties, historic homes, and scenic properties.
After looking at all this information, the term “brain death” comes to mind. However, no one wants to discover after they have bought their home that they paid too much. Nor do you want to risk not getting your dream home because you did not realize that the seller’s list price really was a fair price and you should have offered what they wanted (or more). This is a necessary step. It should not be avoided.
Guessing Where the Market Is Trending
The CMA — Comparative Market Analysis
The CMA is raw data, a tabular record of what has happened in the market over the past 6 months (or other time frame). The CMA serves as a springboard for determining market trends. It really is ancient history.
What we really need to figure out is: where is the market going? What are the trends?
I use a spreadsheet into which I plug the raw data from the MLS: active listings, pending listings, closed listings, expired listings, withdrawn listings, and released listings. I count roof tops to figure out how many properties have been in the market over the past 3 months or 6 months.
The Hotness Index
My “Hotness Index” at various price points for a neighborhood or type of property shows the current demand by formulating a ratio between active listings and pending listings. This shows quite accurately where the current demand is.
The Absorption Rate
We will look at how many homes are selling in any given month, showing the rate of home sales, thereby giving us an “absorption rate,” telling us how many months supply of homes there are in that particular neighborhood. In other words, if no other homes were to come on the market in that particular neighborhood, how long would it take to sell all the available homes?
Days on Market
Days on Market is an indication of how fast homes are selling in a neighborhood — among those that sell. Some homes never sell because they are in poor condition or are overpriced. Sometimes it is a matter of just waiting for the right buyer to come along for a unique property. Days on Market statistics are no reflection on the value of a property and should therefore be used judiciously as a criterion.
Odds of Selling
Odds of Selling is determined by looking at the number of homes that have sold by comparison to how many rooftops have been in the market. It is a very good indication of the odds a seller has to sell his or her home in the next three months.
If you hire me to represent you as a buyer or a seller, I will provide you with customized market analyses to help pinpoint the selling price of a particular property in a particular neighborhood at a particular price point.
However, you can see the current market trends for certain popular markets that I watch regularly just to get a feel for the pulse of our local market in and around Tulsa. On the 25th day of every month I do CMAs for midtown Tulsa, Broken Arrow, and Owasso as well as for houses on 2 to 5 acres (country estates), 5 to 20 acres (hobby farms), and 20 acres or more (farms and ranches. I publish these under the market analysis category on my blog.
To get a clear picture of the market trends, I have my husband create a graph showing the change in the 3-month absorption rate for each market. This is a dramatic graphic representation of where the market is going. Watch for the trend lines going up or down in various price categories for properties in specific areas.
Real estate is micro-local and so the market trends vary from one geographic area to another and from one type of property to another at various price points.
Structuring the Offer
Buyers review the data and decide how much to pay for the house and how to structure their offer. Buyers can take as much time as necessary to make this important decision. However, in our competitive seller’s market, we cannot guarantee that a home will remain on the market while you hesitate to make a timely decision. While sleeping on it is wise, you may find yourself in a position where you will have to “pull the trigger” and make a quick decision. So be ready.
I cannot tell you what to pay for a property. I can give you my opinions. However, the decision is yours. I provide. You decide.
In fact, it is best when the buyer makes the decision without my interference, because in reality I cannot tell a buyer what to do. My job is to present options and guide the buyer through the process to the best of my ability.
Copyright © 2020 Deborah M. Durkee. ALL RIGHTS RESERVED — Analyzing the Property and the Market