5 Prices to Consider When Buying a Home

Establishing a Strong Starting Point in a Property Negotiation

In last week’s column, I discussed five prices to consider when pricing a home to sell. The outcome of that exercise was the listing price.

The listing price, also known as the asking price, is the price at which an agent puts a home on the market.

As we know from last week’s column, the listing price is not the value of the home. Instead, it is a marketing price point based on the judgment of the seller and a real estate agent.

In order to determine the offer price, you should consider the following five prices from your perspective:

1. Listing price
2. X-Value^TM
3. Acceptable price
4. Offer price
5. Right price

Think of these five prices on a vertical axis. They are relative to each other and some could even equal each other. The greater the distance between each relative price, the more difficult it will be to reconcile the difference and, if you can’t, you should be prepared to explain and justify the gap, either in your own mind or during the negotiation.

X-Value^TM

The best place to start is the X-Value^TM. It is a cold-hearted, mathematical, computer-generated valuation of the home. It contains no marketing or qualitative premium. So the first question you and your agent should discuss (among yourselves) is “why the difference between the listing price and the X-Value^TM?”

In order to answer this question your agent should use Agent Connect^TM and Home Report^TM to compare X-Value’s comparables (i.e., similar homes) with the home for sale.

Your agent should then put on his or her detective cap and investigate possible reasons for why the seller agent listed the home above or below the X-Value^TM and its comparables. Note that a smart agent knows how to get this information. This is a huge value-add to you. This investigation can save you thousands of dollars and, in some cases, keep you from buying a home that would have been a disaster for you. (I have one friend whose agent discovered hidden structural issues during the investigation, which caused him to walk away from the deal.)



Acceptable Price

As part of the Comparable Market Analysis used in comparing X-Value^TM to the Listing Price, you and your agent will develop your own view of the value of the home. This view may be above, below, or at X-Value. It does not matter as long as you can justify, in your mind or in a negotiation, the qualitative reasons for why your view differs from X-Value^TM.

We call this view the acceptable price. The acceptable price is the value of the home that you objectively believe to be true. Your goal in the negotiation is to buy the home at or below the acceptable price.

Offer Price

Now that you and your agent have established your acceptable price, it is time to determine what price you will offer the seller.

In setting your offer price, you should factor in your negotiating strategy.

If your agent is a good negotiator and the market is trending downward, then by all means offer below your acceptable price. However, only do so if your agent has laid the negotiation groundwork, which I will discuss in next week’s column.

If there is a huge gap between your acceptable price and the listed price, then you should offer at the acceptable price or even consider going above it. If you find yourself in this situation, then carefully review your financial situation to make sure that you are prepared to risk buying a home above your view of its value.

Right Price

Until now, it has been you and your agent. You discussed your dreams and wishes. You used X-Value^TM, Home Report, Agent Connect and your judgment to arrive at an offer price.

The right price is the agreed upon price between a willing buyer and a willing seller. Arriving at the right price requires some serious negotiation and gamesmanship. This is the subject of next week’s column in Saturday’s Classified.

(By the way, the principles in this column apply to rentals, landlords, their agents, and rental X-Value^TM)