Market/Sales price
Whether you are planning to buy or sell a property it is
important to become familiar with the terminology of real
estate. In real estate the three terms that are commonly used
interchangeably are value, cost, and price. Although, all are
concepts relating to value, they are not the same. Let’s begin
by differentiating between the terms.
Value deals with something that will happen in the future;
whereas cost relates to past events, and the amount of money
actually paid for the property is the price. Depending on
circumstances, the value of a property may be the same, more
than, or even less than the price. Several things determine the
value of a property: the degree at which it satisfies a need,
ratio of supply to demand, transferability, and whether a
perspective buyer with need for the property can financially
afford the property.
Value is a term, which should be used when speaking of what you
think the future benefits will be from the ownership of a
particular property. There are several questions that might be
asked when trying to assess the value of a property: 1. What is
the zoning code? What’s the possibility of it changing in the
next 10 years? 2. If the zoning changes, would it impact the use
of the property? 3. What are the plans for the surrounding area
(a highway, shopping center, amusement park)? 4. What impact if
any do the topography, climate, and location have on the value?
5. Will the value be influenced by the interest rate or property
taxes?
Market value is the projection of the price the property should
bring when the real estate market is competitive and open.
Remember â€" there is a difference in value and price.
Market price describes an activity that has occurred and, as
stated above, is the amount a buyer actually paid for the
property. The price paid for a property is dependent on several
things: motivation of the buyer or seller, location of the
property, needs of buyer, and price of similar properties.
The reason to sell or buy a property is as varied as the seller
or buyer and can impact the sales price. If a seller is highly
motivated he may be more willing to adjust the price of the
property toward what the buyer is asking. Reduction in income,
financial inability to pay the mortgage, a change in marital
status, too many similar properties for sale, and the desire to
be removed from the responsibility of the property are
conditions that could motivate a seller to adjust the sales
price; thus creating an environment conducive to bargaining for
the buyer. However, a less motivated seller may not be willing
to negotiate his asking price, which probably is in line with
the market value described aboveâ€"not good for a buyer looking
for a deal!
A seller’s ideal buyer is a motivated one. If a buyer, for
whatever reason, is determined to purchase a particular property
and is financially able, the asking price will be similar to the
sales price. A situation such as this can mean little
negotiation is needed and we have a satisfied seller.
The amount a property sells for has a direct relationship,
normally, with the location of the property and how well the
location satisfies the needs of the buyer. The more the gap is
closed between how well the location of the property addresses
the needs of the buyer the greater the chance the sales price
will reflect the asking price and market value. A property 20
miles from the closest major highway will not be a good fit for
a buyer needing to be in closer proximity to the highway. Before
beginning a search for a property a buyer should identify his
needs and motivation. By doing this, he positions himself for
effective negotiations.
The closer the needs of the buyer matches the features of the
property to be sold the greater the chance the sales price will
reflect the asking price and maybe even the market value. As a
seller, to identify serious and motivated buyers prepare a
couple questions that will outline the buyer’s needs: 1. What
features are you looking for? 2. What’s the purpose of your
move? (This question will help you assess the buyer’s
motivation.) 3. When would you like to close?
Today with the downsizing of many companies, some homeowners
have been forced to file bankruptcy. Bankruptcy influences the
price at which houses eventually sell because in calculating the
asking price of a property a comparison of the sale prices of
similar properties should be made. The sale prices of these
homes often are lower than the market value and the asking
price. If the home you are preparing to sale or buy is located
near surrounding communities with high bankruptcy rates then the
sales price will more likely be adjusted closer to those sale
prices.
Remember: whether buying or selling a home, do not confuse the
sales price, which is the actual price a property sells and the
market value â€"merely a projection and may not reflect the
selling price.
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