May 19, 2020
Tips for Mastering 'Price, Value and Cost' and Buying Your Dream Home
Written by Megan Gates
Knowledge is power. Becoming an educated buyer gives you the advantage when you are in the process of negotiating for your dream home.
Recently, on “Eye on Real Estate with Dottie Herman,” Dottie Herman, the CEO and President of Prudential Douglas Elliman, discussed three crucial elements used to determine the worth of a home. In her broadcast, “The Art of Negotiations,” Dottie explained how PVC–price, value and cost–comprise the worth of a home and determine the right price for you.
First, search for a broker that suits you, your preferences and understands the real estate market in your area. Some aspects used to determine a property’s worth are the same for every real estate transaction. Some aspects depend on your personal preferences. Combining your broker’s knowledge with your preferences determines the worth of a property as it pertains to your purchase. Knowing what the home is “worth” to you, puts you in command when negotiating the final price.
How do you know if the asking price is correct?
“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 answered.
Fair market value is determined by comparing the price of similar properties in your target area. A real estate broker provides this information through a Brokers Price Opinion (BPO) or a Comparative Market Analysis (CMA). Herman urged potential homebuyers to “eyeball” properties for information that is not contained in either the BPO or CMA like:
Wear and tear on the property
If a home with a view is your non-negotiable, then you may think the price is “fair” even though the price may be above others on the BPO or CMA. Conversely, if a home requires extensive repairs or is next to a dilapidated property, then the price in a BPO or CMA may not be so fair. Knowledge gained when determining fair market value is a powerful advantage when negotiating.
The value of a home is as Herman states, “An opinion of what you think the home is worth, based on how you are going to use it.”
Each property will have features highly valued to some but not others. For example, homeowners are advised that remodeling a kitchen or bathroom add “value” to a home. However, if a potential buyer is looking for a home in a prestigious school district, then that kitchen or bathroom remodel will have little value to them if the home is outside the school boundaries.
Herman stated that sellers believe that the cost of the house is what they paid for plus all of the improvements and money that they put into it thereafter. She went on to say that, “Cost is a measure of the past.”
Because different factors are intertwined and influence price, value and cost, the worth of a home is an estimate, and as Herman states, “There is no exact science to pricing.”