Picking the Right Price Range for Your Home Search
Picking the right price range when searching for a new house is important because if you don't, you could miss out on finding the right home. You also don't want to waste time looking at homes that don't fit your criteria because they cost more than you want to pay.
The only thing worse than finding your dream home and discovering that the seller won't bend on price is not finding your home at all because the price range you chose was wrong. Learn how to choose a good price for a home.
Flex Your Price Point Ranges
Real estate agents don't always think about the way buyers search for homes when they accept a listing. By not pricing a home in the right range, sellers might lose buyers because they never see the listing.
As a buyer, you should work with an expanded price range. For example, if your maximum purchase price is $399,000, you should not set up a property search with an upper-end price point of $399,000. By doing so, you will miss houses priced at $399,950 or $405,000 that you may want to consider.
The following are the price ranges that buyers typically search for:
- $275,000 to $299,000: This doesn't include homes listed below $275,000 or above $299,000.
- $250,000 to $275,000: This doesn't include homes listed below $250,000 or above $275,000.
- $225,000 to $250,000. This doesn't include homes listed below $225,000 or above $250,000.
You can see the dilemma; the price ranges are narrow and might eliminate homes that could fit your budget. Expand the price range of your search to locate all relevant listings.
Your budget should determine the maximum price you'll pay for a home. It's easy to be swayed if you're approved for more or find a home outside that range, but ultimately, your house payments need to fit into your budget (with room for maintenance, repairs, insurance, and property taxes).
Compare History of List Price to Sales Price Ratios
Ask your real estate agent to print out the history of the past six months or more of sales activity in your targeted area. With that information, compare the original list price to the final sales price. If the sales price is lower than the list price, you should calculate the difference.
Let's say you have the information for all of the houses in that area in your price range. If the average sales prices were $315,000, but the average list prices were $329,500, the difference is 4.4%. So, if your maximum is $300,000, you could consider houses priced at $312,500 and submit a lower offer.
This formula works well when a lot of homes sell. With fewer sales, averages don't apply, but you can still figure out the discount percentages on those homes to arrive at a reasonable ratio to use.
Figure Out Seller Motivation
You shouldn't expect a listing agent to tell you why a seller is selling since agents who do could be violating their fiduciary relationship to the seller. But motivation is important since some homes are sold at big discounts when extremely motivated sellers are involved.
These are sellers who are (among other things):
- moving due to job relocation
- divorcing when selling
- going into foreclosure
- doing a short sale
- looking for immediate cash
- getting married
- buying another home contingent on selling
While you might not know the exact circumstances, your agent might be able to get a sense of how motivated the seller is. The number of days on market and whether the price has been reduced (and how much it's been reduced) are also good indicators.
Examine Market Temperature and Days on Market
Market temperatures can be hot, cold, or neutral. In a hot market, you may want to submit offers at or above asking. In a cold market, a seller may jump at a competitive offer.
If you're home shopping in a seller's market where there are more buyers than available homes, sellers will most likely get their asking price. In some cases, sellers will receive multiple offers, resulting in a price higher than the list price. If your maximum limit is $300,000, you should probably stick very close to a maximum price of $300,000. However, if it is a buyer's market with more available homes than buyers, prices are soft. That means most sellers will negotiate with you and it leaves room for you to look at slightly higher-priced homes.
It's also important to know that real estate agents take overpriced listings. Those are typically the homes that sit on the market the longest. Consider looking at overpriced homes that have at least 90 days on market. There might be nothing wrong with them but pricing, and they might be prime candidates for a big price reduction. If you get to them first, you may be able to beat the competition.