When you're searching for a new home, it's hard to know if you're paying too much or if the seller's low price is perhaps indicative of an area's overall market value (i.e. "resale").
Pay too much and the market turns, never get your money out. Buy because the price looks like a steal and it may be a sign the seller knows something about the neighborhood or house that you don't.
So what's a good way to know what price you should pay for a given neighborhood?
Well, the best way is to use a method similar to what mortgage lenders will use when deciding how much they'll loan you to buy the home: check the prices of "comparables," or homes that match the overall profile of the homes you're looking at.
Why is this a good way to do it? Well, banks don't like to lose money. When they give you a loan, the amount is based on what they think you're home will actually be worth if they have to take it and sell it should you not make the payments.
But evaluating comparable homes, or "comps," is easier said than done.
To do so effectively, you have to have all the date on all the homes that are on the market at a given time and be able to match the ones you're looking at to similar ones. From there, you have to crunch the numbers on pricing and closely measure what "similar" means.
Usually, similar is defined by things like:
- Proximity and Location - Comps have to be in the same area or neighborhood.
- Bedrooms and Baths - A comparable needs to have just about the same number of bedrooms
- Home Size - Comps to the homes you're looking at will need to be very close in size of living space
- Land - Comparable homes will match roughly the same footprint as far as the land it sits on goes
- Age - Homes that are comparable have to be about the same age
- Style - Sometimes, home style is an important factor (although mortgage lenders rarely look at it)
Now, what homebuyer has the time, skills and data to do all this and still effectively choose a home? Not many. Maybe no one, in fact.
Don't worry, here at HomePocket, we've done it for you with our Comparability Index.
On every home listing you view (like this one in Atlanta), we crunch through all the existing homes that are on the market right now to show you what the average price is for comparable home to the one you're looking at - and we take into account ALL of the criteria outlined above.
If it's within 5 miles of the home you're looking at, we measure everything for you and show you what the average price is for homes like the one you're viewing.
How is this helpful?
Well, for starters, real estate markets are dynamic. They change all the time. Many buyers and their agents don't pay close enough attention to trends that immediately and drastically affect home values. Things like mortgage rates, home inventory, presidential elections and many, many more.
By knowing what the average price is at any moment for homes similar to the ones you're looking at - and in the same area - help you in many ways:
- Don't waste your time with listings that are drastically over-priced for no apparent reason when other comparable homes exist.
- As your home search goes on (most last 3-4 months), get a sense of how average prices for comparable homes are changing as homes come and go from the market.
- If a home is drastically UNDER priced, start asking questions about the home's condition, area, job market, crime, etc. and find out why it's so far below average.
- By having a list of comparable homes at the ready, help your Realtor better negotiate with tough sellers by showing them what's out there and what the average price is for competing homes.
All you have to do is register on any listing page or on our search page and then you can log in to see the Comparability Index for any home you're looking at.
Be sure to click the little "Save" button on any listing card or any listing photo to save your favorites to a Pinterest board you can share with your Realtor or family! It will help you have a good comparable price list at the ready!
Are you thinking about selling and wanna know what you might get for it? You can check that here too for FREE with our home valuation tool:
Register for HomePocket today FREE and see if your favorite home is priced right! Plus, sort and filter all your listings too.
Don't find homes in your city? Ask us to add it.
About the Author
After having spent my career in Information Technology and government service for the US Intelligence Community, I'm helping build a better, more direct way to connect home buyers and sellers. We think real estate can be a better, more convenient experience for everyone involved and we're out to make it happen! Our solutions will change the way buyers, sellers and realtors market themselves and connect with one another. We're just getting started! In fact, it's our goal to make the home buying and selling experience as much as possible like what we've all become accustomed to with the likes of Amazon, Zappos, LetGo and other powerful, simple, easy and convenient solutions that have transformed our lives as consumers.Follow on Twitter More Content by Rebekah Polancich