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What is a reasonable offer on a house?


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#1 of 47 OFFLINE   Robert_Z

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Posted June 14 2004 - 04:48 PM

I am an amateur trying to buy my first house. The one I want is overpriced and the seller will not come down far enough (I think). Here is what I did to calculate how much I should pay. Please tell me if this is a reasonable way to do this:

I had my realtor determine the average price per square foot for all the houses in the neighborhood. I multiplied that by the square footage, then added 100% of the cost for updates made by the current owners. I realize that the rate of return on such updates is usually about 75%, but for the sake of argument, I gave them the full 100.

When I added the updates to the price, I was still $10-15,000 below what they are asking. This is frustrating to me because today I visited a house that is 20 years newer and 600 square feet bigger, with the same price tag. Different parts of town, but both are in good neighborhoods.

Is price per square foot the most important factor to consider? Should that alone disqualify the smaller house from consideration? I don't want to be a sucker. I believe I would be happy in either house, but I prefer the smaller one. This sucks. Posted Image

Help??

#2 of 47 OFFLINE   Leila Dougan

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Posted June 14 2004 - 05:01 PM

I don't think there's any "magic" formula for telling you how much a house is worth. Your best bet is to look at similar sized houses in the immediate area (like within a 1/2 mi radius) and see what they have been selling for. You will also need to know how quickly they are selling. A real estate agent should be able to pull this info very easily.

Remember, it's all about what the market will bear. "Worth" is all subjective and will vary with the time of year, an area's growth rate, interest rates, etc.

When I bought my house in March, it was a bit tough for buyers. The houses we were looking at (3bdrm, 2ba in a nice neighborhood) were going under contract within a week and many of them were going for at or near asking price. We had 3 houses snatched from under us because it was just that competitive. The house we ended up buying, we made an offer on it the 2nd day it was listed and paid full asking price. But the thing is, all the houses in this area were going for that price so eventhough it was what they were asking, I don't think we necessarily overpaid.

#3 of 47 OFFLINE   Robert_Z

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Posted June 14 2004 - 05:16 PM

Quote:
I don't think there's any "magic" formula for telling you how much a house is worth. Your best bet is to look at similar sized houses in the immediate area (like within a 1/2 mi radius) and see what they have been selling for. You will also need to know how quickly they are selling. A real estate agent should be able to pull this info very easily.

My realtor ran a comp, but on all houses in the immediate area, rather than similarly sized homes. That is where I got my average price per square foot.

This house has been on the market for 3 months, yet the sellers will not even come down $5000 from their asking price. The seller's realtor printed a comp sheet comparing updated homes that have sold in the past 9 months or so. Those all sold for slightly over $100/sqr foot, which is within $1 of where we are now. But I have no way of knowing if the caliber of those upgrades was better or worse than this house??? The newer house I visited today is selling for $71 per foot. BIG difference.

Why do I feel like an idiot for wanting to pay so much for such a small house? (1300 square feet) I am trying to decide which will hurt more: to pay for it, or to let it slip away.

#4 of 47 OFFLINE   Leila Dougan

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Posted June 14 2004 - 05:31 PM

Well I think in this case, if all signs point to it being overpriced, then it probably is. The hardest thing I had to learn when house hunting is that there is no one, perfect house. You can be happy living in several different houses and there's no point in really overpaying for something. And as tired as the old cliche is, there is always something else out there.

If you feel like an idiot paying so much for a small house, then I'd trust your gut. Even if you're not technically overpaying, if it's more than you're willing to spend then let the house go. I know that you're probably eager to find a house (I know I was) but in the end, it's best to keep looking. Trust your instinct, not the sellers real estate agent. Posted Image

#5 of 47 OFFLINE   Patrick Sun

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Posted June 14 2004 - 06:35 PM

Never fall in love with a house, there's always another one for sale. My neighbor who's selling her house has had it on the market for over 8 months, and she wants what she wants, and isn't in a big hurry to sell, so it just sits and sits, and becomes sort of an eyesore, truth be told. Maybe she'll figure it out one day that her asking price is too high...
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#6 of 47 OFFLINE   andrew markworthy

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Posted June 14 2004 - 08:40 PM

One thing determines a house price the world over - location. If something is overpriced relative to other houses in the same district, it's overpriced, simple as that. A house really has to be something very very special to merit being appreciably more expensive than other houses in the same area. Is there anything unusually good about the property you're considering, Robert?

Piece of trivia - in the UK we judge primarily by the number of rooms, regardless of floor area. I would guess that the overwhelming majority of Brits haven't a clue what the square footage of their houses is.

#7 of 47 OFFLINE   Philip_G

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Posted June 14 2004 - 09:37 PM

houses are tough, no two houses are (reasonably) alike, it's not like comparing cars. Sounds to me like you're taking a level headed approach. In my opinion a fair price on a house is what you're willing to pay and the seller is willing to accept.

I think that's SOMEWHAT true in the US andrew, a house will always be listed as 3bedroom/2-1/3 bath/then the square footage.

#8 of 47 OFFLINE   Yee-Ming

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Posted June 14 2004 - 09:49 PM

Perhaps in the UK, most rooms are roughly the same size, so number of rooms = rough estimate on square footage?

What irks me is that apartments (forget houses, waaaay to expensive for me) of a certain square footage inevitably have a certain number of bedrooms. For a DINK couple, we would've preferred the same square footage, but one less bedroom, which we didn't really need, but they were all more or less the same configuration. Or maybe we didn't look hard enough. Oh well, we're happy with it; just that it'll take forever to pay off the mortgage... Posted Image

#9 of 47 OFFLINE   Chris

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Posted June 14 2004 - 10:15 PM

It's easy to have other estimated appraisals for value.. by comparing with non-local comps.. always assess the closeness of the comps, etc..

Realize also, if you think it's over, and your agent does.. it probably is. At that point, you just submit an offer for what you think it's worth, if they pass, then walk away from the table. Nothing worse then coming up to meet their value, having a bank do an appraisal and say "no way, it's not worth X" then you either blow everything up or you go in upside down out of pocket.. neither is good Posted Image
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#10 of 47 OFFLINE   Kirk Gunn

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Posted June 14 2004 - 10:45 PM

I agree with Chris, put an offer in and see what happens. With today's market, most houses move quickly so the owner's have to know it's overpriced. Either the owner has financial obligations/debt and HAS to get a certain amount for the house (perhaps they are getting a divorce and this amount deals with the settlement), or one of the realtors may not be a very good negotiator.... Nothing to lose by putting an offer in.

When we bought our first house, we drove through a particuar neighborhood we really liked. Our current realtor said there was "no way" any houses in our price range would ever be available. We switched realtors a couple weeks later and made an offer on a house there (low-balled them), and ended up getting it.

#11 of 47 OFFLINE   CalvinCarr

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Posted June 14 2004 - 10:57 PM

There are a lot of people who could care less if their house sells and will put a big price tag on it just to see. They don't actively try and sell it. I have seen property for sale for several years because of this. They are just sitting back hoping someone will come along and really,really,really want it bad enough.

#12 of 47 ONLINE   DaveF

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Posted June 14 2004 - 11:46 PM

Quote:
This house has been on the market for 3 months, yet the sellers will not even come down $5000 from their asking price.

Quote:
There are a lot of people who could care less if their house sells

Yep - this could be a seller who isn't actually serious about selling his house. So you may be right, the house is greatly overpriced. And you may be making a good offer. But if the seller doesn't truly want to sell, then there's nothing you can do about it. Move on.

Quote:
I had my realtor determine the average price per square foot for all the houses in the neighborhood.
Was this for just the houses that sold in the past year or two, or for all homes? The latter would give a too low value, I'd expect.

#13 of 47 OFFLINE   Garrett Lundy

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Posted June 15 2004 - 12:22 AM

The problem is that there is just so much more than simple sqare footage that can add or detract from the value of a home.

*Does it have a steel skeleton or wood? (steel skeletons don't have termite problems. This is a big issue in warm, wet climates)>

*patio, deck, yard ,pool, and landscaping

*What kind of roof, walls, windows, doors?

*Is the agarge wide enough? long enough?


In the end, my personal opinion will always be to design and build your own house if you can afford it. Or buy a brand-new modular design (I don't trust "used" disposable housing).
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#14 of 47 OFFLINE   Scott Merryfield

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Posted June 15 2004 - 12:38 AM

As others have said, your best bet on determining the fair market value of the home is to compare with the selling price of other similar homes in the immediate area. Comparing to homes in another part of town, even if both are nice neighborhoods, is not a valid comparison. Remember the first rule of real estate -- location, location, and location are the three most important factors in determining a house's value.

We live in a very nice neighborhood, but similar homes .25 mile north of me (same township) sell for 15% more than my home. Homes .25 mile south (same township) sell for 15% less.

#15 of 47 OFFLINE   Todd Hochard

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Posted June 15 2004 - 01:35 AM

Here in Orlando, I find that, within a given neighborhood, the smallest homes will sell for slightly above average per-square-foot prices, while the largest homes will sell below average. IOW, in a neighborhood that has homes ranging from 1330-1980sq ft (such as mine), the 1330 sq. ft home may go for $105/sq., but the 1980 for only $86/sq. That's actually typical right now in my subdivision- there is a 1330 sq. ft home for $140k or so, and a 1975 sq ft. listed for $170900. Both seem reasonable to me. My home, at 1500 sq ft, would likely go for 150-155k.

So, do comparables for homes of that same size in the neighborhood (within that subdivision, if possible), and be certain that you are accounting for the rapid rise in price over the last two years (who says there's no inflation?Posted Image ). Here, we have a website (www.ocpafl.org) that shows sales throughout the county. All you need is a subdivision or address to see what anyone (including those that currently live there) paid for the house. Perhaps there is also one for your county?

EDIT- something to think about- newer homes are typically much more energy efficient. Better insulated, more energy efficient heating/cooling, etc. I hear the Austin housing market is a LOT like Orlando's- young, lots of new construction, so something to consider. An older home may eat you up in monthlies.

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#16 of 47 OFFLINE   Tony Whalen

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Posted June 15 2004 - 02:40 AM

I'm not sure about the cost-per-square-foot idea.

As others have said, the BEST comparison is to look at similar-sized houses in the immediate area, and see what they were selling for.

If they won't budge on the price, go with your gut and move on. Never get emotionally attached to a house. Besides, a house being on the market for 3 months or longer is generally viewed in a negative fashion... (ie "why hasn't it sold yet?")... at least by realtors I've dealt with.

I'd say move on.

#17 of 47 OFFLINE   Angelo.M

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Posted June 15 2004 - 02:53 AM

I wouldn't be so hasty to "move on" if this is truly the house you want. Unless I missed it, I don't know the price of the home you're looking at, but is $10,000 or $15,000 going to make a difference, ultimately, if you are in the house you want? Will you regret (1 or 5 or 20) years from now not having spent the extra $, at a time when interest rates are still near historic lows? Is another $15,000 going to make it impossible to come up with your down payment; is it going to substantially increase your mortgage? I wouldn't settle for a home I didn't really want because it was a "better value." You're not buying a loaf of bread here.

I'm not saying you shouldn't bargain, not at all. Make an offer you can live with, but be prepared to raise your offer an acceptable percentage. There is nothing wrong with making the offer you are comfortable with, regardless of what you think the seller (or your realtor) has in mind. This is your money.

I've purchased 2 homes in my life, and in both cases I felt as though I didn't compromise. No regrets in either case, and the substantial profit I made on the sale of my first home made me feel good about the choice.


#18 of 47 OFFLINE   andrew markworthy

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Posted June 15 2004 - 06:12 AM

Quote:
Perhaps in the UK, most rooms are roughly the same size, so number of rooms = rough estimate on square footage?

Alas, no. Unless you are *very* wealthy in the UK, the largest room in a new Brit house is likely to be about 15x10 (that's feet, not metres) for the living room, slightly smaller for the master bedroom, and the other rooms are likely to be microscopic. The reason is that land is very expensive in the UK. I'm told that in some places 'out East' (sorry, Yee-Ming, old chum, I know it's not remote for you) such room sizes will sound vast (a friend of mine worked in Hong Kong for an astronomical salary and could only afford a shoe box sized apartment), but I suspect by American standards it sounds like a tiny garden shed.

Back on topic. I should have added to the first post that if a house is just what you specifically want and you're not looking for a quick re-sale, then it can be worth being more accommodating.

BTW, could someone please tell me if my comprehension of what a realtor does is correct? I've gained the impression that it's someone who searches out local property for you and finds what you need in return for a fee. Is this correct? We don't really have them here (except at the top end of the market for £1m+ properties). We humble peasants have to go round all the estate agents (agencies that sell houses on your behalf in return for a fee - very few Brits do private sales; and if you've ever had dealings with Brit property law, you'll know why). Don't take this the wrong way, but Brits would find the idea of someone choosing a house for you (or even drawing up a shortlist) kinda weird.

#19 of 47 OFFLINE   Tim Abbott

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Posted June 15 2004 - 06:18 AM

Robert_Z,


Price per square ft is certainly something you want to consider, and its probably one of the more important ones, but it is a two dimensional view of something that is very 3D. You should also be looking at:

-Inventory (# of properties on the market)
-Average # of days for a property from list to sale date
-Days on market (is this house lingering?)
-Recent comps (properties that have actually closed)
-Recent listings

This doesn't even take into account the non-numerical factors:

-Appreciation potential
-Desirability of the school system
-Updates done to the property
-Location
-Location
-well...I think you get the idea.


Personally, I'm not sure if your realtor is doing their job. They should be helping to educate you and letting you know what the trends are in the marketplace. They should also be using that knowledge on your behalf in negotiations. As an example, when you look at what interest rates have done over the last 12 weeks (up approx 1.25% on the 30 yr fixed) housing has become roughly 15% more expensive. Current conditions may dictate that a house that was listed 4 months ago for $400K may not be worth that today based on the increased cost of a mortgage. Your realtor should be pointing that out as a buyers agent. Make sure you are not working with someone as a sub-agent, that is a waste of time and not in your best interest.

Bottom line, if you aren't 100% confident in your realtor, you need to find a new realtor.

Good luck!

#20 of 47 OFFLINE   Sean Van Voorhe

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Posted June 15 2004 - 08:34 AM

$100/sq ft???? my "shack" is 980 sq ft and I paid $214k for it 3yrs ago. I considered it an absolute rip off at the time but with nothing else in my range I bought it. 3 yrs later it is now worth at the very least $320K, so I guess it turned into a good buy after all.

Good luck to you. Purchasing a house really can be a challenge.


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