When analyzing whether a home for sale is priced properly or not, there are several factors to evaluate. First, and most obviously, what’s been selling in the neighborhood, and for how much? I’ll use the Seminole Pointe addition of Edmond, located at NW 164th & May as an example:
As you can see here, the overall average price per square foot in Seminole Pointe over the past 90 days has been a little over $90, with the average sales price coming in at just under $138,000. Now let’s look at how the third quarter of this year compares with the same quarter of 2007:
Here you see that overall sales in Seminole Pointe for Q3 of 2008 are way below the same quarter in 2007. The main reason for this is that homes were still being built in 2006 & 2007. Now that the community has built out, sales have slowed, as is typical.
The same reason can be blamed for the other declining numbers you see in the chart above. Brand new homes are no longer available, so buyers begin offering less $$ for ‘pre-owned’ homes. Again, typical. As long as the Edmond real estate marketcontinues on the path it’s currently on, we should see home values in Seminole Pointe begin to climb again over the next year.
Now for the tricky part. When evaluating a particular home for sale, you have to take into account other factors, besides just past sales trends. What condition is the home in? How does it compare to the other homes in the neighborhood? How large or small is it in comparison to the others? If it’s ‘average’ in size, rooms, and condition, then you can use the average pricing in the chart above. If it’s in above-average condition, it should bring an above-average sales price, and of course the reverse would be true if it’s in below-average condition.
Generally speaking, large than average homes will bring less $$ per square foot, simply because the neighborhood can’t sustain an equal price-per-square-foot for much larger homes; take, for instance, a home in this same neighborhood that’s in immaculate condition (like brand-new), with 2,084 square feet, a large lot, a 3-car garage, and all the ammenities, such as solid-surface countertops, high-end flooring, etc. If it were to bring the top price-per-square-foot of $103.39, it would sell for $215,465. The top sales price in the entire neighborhood in the past 2 years was $205,268. As a home buyer, would you pay $10K more than the neighborhood’s current ceiling? More importantly, would the bank loan a potential buyer $10K over the neighborhood’s current ceiling? Most likely not. This is why larger homes generally sell for less $$ per square foot.
Finding the magic number can be tough, especially if you’re trying to buy a home that’s overpriced to begin with, and offering far below list price can insult and alienate the home seller. However, if you’re able to justify why you feel your offer is a legitimate number, it can help in getting the seller to take your offer more seriously and hopefully keep an open line of negotiation open.