Profile picture for adosweet

A simple " FORMULA " for making an offer?

Years ago, an appraiser I had the pleasure of doing buisness with, told me of a simple, rule-of-thumb, " formula ", when it came to making an offer on a home, but I'll be danged if I can remember it. I'm really at a loss in the meantime, but need to make an offer soon! The home's been listed for the past 5yrs, off and on, and I'm the only one that will be offering on it, to date. It's now listed for 200k, and CMV is 110k, and there's a listing agent involved. I want to make a fair offer, but definitely want it to appraise! Based on this little bit of info, anybody??
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March 15 2012 - US
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If the current market value is 110K in your opinion then you can't possibly offer MORE than that. You can look at recently sold homes and get a very good idea. And you can be pretty sure they appraised for the sold price. Honestly, unless you have plenty of money and highly desire a property for the view or some such thing, it is simply foolish to over pay in this market.

Take several similar sold properties in the area, school district, whatever and figure the price per square footage. Then get an average, and apply it to this home. That is one way to get an idea. I also like to look at a bunch of AVM's, and toss out the highest and lowest, then average the price. You can certainly even add up what it would cost with bare land and build. It doesn't hurt to look at it from a variety of angle.
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March 15 2012

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August 21 2013
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May 02 2013
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May 01 2013
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The formula is to select the correct comparable sales and complete the adustments. Look at all of the sales and be able to explain why the other sales are NOT the best sales. Come to a conclusion of the value. And make sure you look at the current listing history as this usually paints a clear picture. Don't pay more than what the home was listed for for the past 90 days. This price will usually tell you what the house is not worth.

I just appraised a home the other day when most of the comps were selling for $20,000 more than what the home was listed for and never sold. The recent sales history trumphs other sales. The sale of the subject is also sometimes a better indication of the home value, especially if it is recent. In this market, use everything you've got.
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March 28 2012
Price per square foot is not the methodology here. What you need to know is what has sold in the area in the past few months, what the upgrades are and are they similar in age,style,location etc. Why not bring in a buyers agent, the seller pays for it? And they can do an indepth comparative market analysis for you. This seller may have overpaid for the home and paid close to what they are selling for, that is why they are twice the amount that you think it should be and its obvious they are not in a rush to sell. Best of luck to you.. 
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March 23 2012
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WELL put CaptainSeth!  Today is the big day, and I hope all my homework will pay off. Thanx everyone! Wish me luck!
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March 23 2012
The "formula' you are referring to is more secret than the Colonel's recipe, and would require you to undergo various forms of psychological torture, including but not limited to: thousands of hours haggling with seller's agents, equal time dealing with the delusions of homesellers, equal time tallying comparable property reports only to discover that your own formula has no consistency, in addition to a 3 day seminar with Carlton Sheets who hasn't been seen since his Exclusive International Acquisition Series talks back in '99 when he demonstrated to a live audience how he was about to purchase the Sultan of Brunei's palace, with an offer tied into his original property that he happened to buy with no money down.
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March 22 2012
Profile picture for Pasadenan
The $106k Zestimate dated August 2006 is due to county records not having any data for the property on Zillow.

The estimates between February 2006 and August 2006 primarily reflect the "phase in" period for use of agent provided data for the estimates.

Wyoming is a "non-disclosure" state, thus Zillow cannot even calculate their tolerance range for their estimates.  Though it can indicate some "similar listings", they cannot even list "similar recent sales".

It appears that the present $192.3k Zestimate may be in the right ballpark compared to other presently listed properties in the area, especially with the stated range of $133k to $323k.

I don't think you will find much for much less, especially with 4 bed, 2 bath.  But there are a couple listed in the north west corner of town in the $100k price range:

Gillette 4bed-2bath, $100k range
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March 15 2012

It is not a simple process to values a home and there is no formula. I would beware of website valuation widgets. It is more of an art then a science. It is a matter of comparing the house to those sold in the area within the last 6 months or so. Compare based on square footage, bedrooms, bathrooms, etc. Add value or subtract value for each present or missing feature. Your best results would be achieved by getting a buyers representative to do this research for you. Their experience and market knowledge will be better than any formula.

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March 15 2012
Also, there is a contingency clause that allows you to withdraw from the buying contract if the property appraisal figure didn't meet the offered figure.
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March 15 2012
Profile picture for Pasadenan
By the way, knowing if a property will appraise sufficiently for a loan for the specific intended offer amount is not a critical issue if you just put an appraisal and loan funding contingency in your offer.

Of course you would still be out the inspection cost and the appraisal cost if you backed out of the offer due to the contingency.  Which is the reason people do check these things ahead of time.

Sometimes if a property doesn't appraise sufficiently for the offer, the parties will negotiate the price again to try to complete the transaction without starting over.  Sometimes agents will even lower their commissions a bit to assist with completing the transaction.

If you know the fair market value, then you clearly already also know if the listing price is too high or not, and clearly also already know how it will appraise.  But no one is required to accept a "fair market value" offer.  They can keep it on the market for another 15 years if they want, or can keep choosing new agents every year or so.
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March 15 2012
Profile picture for Pasadenan
"Is there any way to know if an acceptable offer will appraise beforehand?" -
Cindy gave some good clues for possibly knowing that.

If you already selected a loan officer, they also can run some preliminary checks; but it is essentially still just a CMA.

In addition, there are multiple free AVM's that can be checked to get a "ball-park" number, but none of them check condition of the houses:

homes.com

Realestate.com/homepricecheck

Homesand.net

Eppraisal

realquest.com express

cyberhomes.com

trulia

chase

homegain

Zillow

You can use the method of throwing out the top and bottom and averaging the rest, but it still doesn't tell you about the specifics, nor changes in condition.

You can also download the housing index trend data from the "local info" pages, and normalize it for the specific property, and then overlay an inflation curve from the consumer price index for housing..., but this will still only give you a "ball park" number for present market value, which you claim you already know.

As for a seller being "clueless"; the seller is not going to sell below market value if their agent tells them that they can do better.  And if it has been on the market for 5 years, they have no desire nor need to sell, thus have no reason to lower their asking price.  You might as well wait until the probate sale after they die.

If your question is about learning effective bartering techniques, I would suggest you go down to Mexico for a week, and just observe the marketplace.

If a house was a "steal" and could be purchased at 20% off of list, someone else would have already bought it.

By "definition", "Market value" is what a property sells for, that a buyer and seller agree upon.  Thus, if you "know" the market value, that is the price you should be paying.  You can offer a bit below that to leave some room for negotiation, but offering too much below what a seller wants will often just close the door with a rejection or non-response.  And if a home is offered below market value, it will often have multiple offers above the asking price.
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March 15 2012
Profile picture for adosweet
Ok Pasadenan, I get it about the formula! I'm ignorant on these matters, which is why I'm asking questions, so easy!? I'm certain of the market value of the property,and why it is so. Without going into detail, I'm also certain that the sellers; an elderly couple, are clueless, and go along with whatever their why-the-hell-does-she-have-a-license-listing-agent has to say. First question: Is listing price too high compared to MV? Next question: Is there any way to know if an acceptable offer will appraise beforehand? ( that's more of a concern to me than the offer itself) THIS IS SUPPOSED TO BE A " QUESTION " !!!
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March 15 2012
Profile picture for Pasadenan
By the way, do you use a "formula" for what price you pay for gasoline, and for a pair of jeans, and a designer handbag?  I would be curious to know what "formulas" you use.  Surely you must be doing some kind of "comparison shopping", and must be timing market cycles and known sale dates, and low demand periods, and "end of season", and "inventory clearance"?
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March 15 2012
Profile picture for Pasadenan
In this market?  No such thing.  Especially for houses listed for 5 years.

And if anyone attempts such a "formula", they will be exploited.  If the "value" and "what a seller was willing to accept" was so "simple", then people wouldn't be complaining about Automated Valuation Models (such as Zestimates).  And Zestimates wouldn't fluctuate so much.

A thread that discusses some of the listing time impact on eventual sale price:  Beat the Zestimate with just two factors

You are better off looking at the price to rent ratio, and skipping properties that are not in line with historic norms.
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March 15 2012
 
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