How Much Should You Pay For a House?
Posted May 6, 2016 12:45 p.m. EDT
$75,000? $150,000? $460,000? $999,000? You’ve found a house that you love. Now it’s just a question of negotiating a price you can live with. How much should that be? Well, there are no hard and fast rules, but we can certainly offer some valuable guidelines on how much to pay for the most expensive purchase of a lifetime. Consider your budget, asking price, comps, the home’s condition, and just how badly you want to own that particular chunk of real estate.
Your lending institution most likely helped you figure out how large a down payment and monthly mortgage expense you can afford. (If you haven’t already prequalified for a mortgage, your first move should be to do so ASAP. Be sure to get the preapproval in writing.) You’ll also need to figure in closing costs, as well as fixed expenses specific to the house you’d like to purchase, such as property tax, insurance, and homeowners’ association fees.
How close should you come to the asking price? That’s a delicate question. You may be tempted to put in a lowball offer, in hopes of snapping up a bargain. Beware, though. This might be a successful tactic in some cases -- for instance, if the house has been languishing on the market for a while (anywhere from 30 days to several months, depending on your geographical area and the time of year). It could, however, have the undesirable effect of turning off the seller and costing you the deal. Nevertheless, there is usually a little wiggle room in an asking price, especially if you throw in some concessions like flexibility on the closing date. IMPORTANT: In a city where properties are in high demand, like San Francisco, it might actually be worthwhile offering above asking price to grab the house of your dreams.
Look into comps for the home’s location – figures on recent sales prices of similar properties nearby. The average asking price of comparable homes currently for sale is also important, since real estate prices can fluctuate drastically in just a few months. Make sure that you’re not comparing apples to oranges – take the houses’ size, age, quality, condition, and amenities (perhaps a high-end outdoor kitchen or a remodelled basement apartment), as well as the terms of the sales, into account. A well-informed buyer’s agent will be an invaluable resource here.
The home’s condition
Does the home need obvious upgrades? Factor their estimated cost into the amount you are prepared to pay for the property. With the seller’s permission, you might want to get bids from a contractor or two for a clearer idea of the added expense you’ll be facing if the deal goes through. And of course, always, always include the condition “subject to inspection” in any purchase offer you may make. A qualified building inspector will examine the property to point out any trouble spots and describe the repairs that should be made immediately, together with items that will need attention at a later date. Based on the written inspection report, you may request an adjustment to the house price.
How much you want the home
All that being said, it’s quite possible to fall in love at first sight with a house. Don’t let your emotions totally blind you to the practicalities of a situation, though. As an example, I recently made a purchase offer on a condo, converted from the ground floor of an absolutely exquisite 1933 structure. The inspector was blunt: “The foundation is crumbling, looks like there’s asbestos in the basement ceiling, and you’d need to replace the old knob-and-tube wiring. It could cost upwards of $100K to fix.” I regretfully walked away from the deal. In a less drastic case, your choice will not be so clear. You’ll have to weigh the situation and decide how much the house is worth to you personally in terms of the money, time, and work involved to own your dream.
Laura Firszt writes for networx.com.View original post.