VALUE, COST, & PRICE: THE THREE KEYS TO BUYING YOUR NEW HOME

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By Megan Gates
 
July 18, 2012 (San Diego’s East County)--When purchasing a home, it's important to "become an educated buyer," as Dottie Herman frequently advises. Aside from having a finalized budget in place and knowing how much home you can afford, one of the first steps any potential homebuyer should take is to hire a real estate broker who understands your needs and is knowledgeable of the area and homes in which you're interested. The broker will guide you through the real estate transaction and help you make informed decisions.
 
In a recent broadcast of “Eye on Real Estate with Dottie Herman” titled “The Art of Negotiations”, Dottie Herman, CEO and President of Prudential Douglas Elliman, discussed the three most important aspects to buying a home: value, cost, and price.
 
Value
To understand the difference between value, price and cost, Herman explains that value is "an opinion of what you think the home is worth, based on how you are going to use it.”
 
A home's value will vary from person to person according to his or her wants and needs. For example, if you need to be within a certain school district, a property located within that district will be more valuable to you than a home that is not.
 
Cost
Sellers often believe that the cost of the house is what they paid for it plus any improvements and money that they've put into it.
 
However, it's important to keep in mind that when a homeowner makes improvements to their home, they are actually increasing the “value” of the home. As value varies from buyer to buyer, the price each buyer is willing to offer will differ as well. For example, if the seller has made energy-efficient updates to the property and that quality is important to the buyer, that buyer might be willing to pay more cost-wise because they find those improvements to be valuable. Nevertheless, as Herman explains, cost and value shouldn't necessarily determine the price of the home.
 
Price
Knowing what price to offer is a difficult challenge for any potential homebuyer. “Price is what the home should be worth today. But sometimes people don’t price it right, so what you really want to look at is fair market value," Herman explains. Understanding the fair market value of the home will help you better determine what the home is really worth.
 
Fair Market Value

Fair market value is what the property is worth based on current market conditions. As the market is constantly changing, your broker can help determine this by researching other properties that have recently been listed and sold in your target area and providing you with a comparative market analysis (CMA). The CMA will provide you with the actual price that comparable homes in your target area have sold for in recent months. However, it is important to be aware of what features may not be included in the CMA, such as wear and tear, view, and neighbors, and to take these factors into consideration as well when preparing to make an offer.  

Comments

Thanks for sharing these

Thanks for sharing these valuable tips. It will be really helpful while buying a property in Essex county NJ. I have also read online which said that before buying a home one must consider or ask these few question to themselves: 1. What type of home best suits your needs? 2. What specific features will your ideal home have? 3. How much mortgage do you qualify for? 4. How much home can you actually afford? 5. Do you have serious savings? 6. Who will help you find a home and guide you through the purchase? Asking these questions to yourself will really end you up in buying a good home at effective price.