Hello Experts,

Need some help with my dilemma. Would greatly appreciate any inputs you can give.

We have fallen in love with a house and we want to bid for it. The house is in a court with cul-de-sac with a Pie backyard. So, when we checked the neighborhood, the average sale was at $720k.

The house next door, which has exactly the same location and privacy advantages sold 2 months back at $750k. We want to use that as our pricing benchmark.

However the next door one has a bigger lot size (5600 vs 5000) and 200 sq.ft more in living area (2600 vs 2400).

How can I adjust the price based on the reduced lot size and living?

A simple math, brings it at $695k. Assuming, everything else is the same, that is.

However the other house also has a finished basement, an upgraded kitchen with granite, a fountain & a big patio in the backyard, a central vac, an upgraded 4 pc ensuite (vs a 3 pc in the one we live), hardwood floors on 2nd floor, an upgraded second bath, an accessible door from Garage etc.

If I included these costs, the prices comes down to well about $620K, which does not seem right.

Can you please help?

Thank you.

Ultimately the seller will set the value of the home based on what they will accept. As a buyer you simply have to decide what you are willing to pay which has no bearing on what other homes sell for it is based on what you feel comfortable paying.
Since you have already stated you have fallen in love with the property it is a certainty you are going to over pay.

Offer $620 if that is what you feel is a realistic price based on your research, worst case scenario they say no but at least you have a starting point. Others may suggest you do not want to insult the seller but in reality it is only about money either they will  accept your offer (unlikely), make a counter offer or simply reject. What ever they respond you simply work with it. The biggest problem will likely be your own agent. They can be a road block to getting the best deal as your agent will be more inclined to suggesting a number likely to be accepted quickly by the seller as opposed to the lowest possible price.

Some comments: Markets are not always rational. Land has value - how much depends on city and location.

Using some simple math of $200 per sq ft for house value, each house is worth $480,000 vs $520,000 plus land each, so $230,000 roughly for the land parcel of the big house. Yours being 10% smaller makes your land worth about $207,000. So, $687,000 if in similar condition. Deduct the upgrades .. So maybe $37,000 .. Thus roughly $650,000 for the smaller house with smaller lot with less upgrades.

Now, the market may have gone up .. So maybe it is worth $700,000 to $720,000, only 10% more than my estimate, today. It will sell for whatever the market bears.

The market might be hot right now it being summer and in a rising city .. So $720,000 might be the right asking price.

Ideally, you ask a local realtor or 3 for an opinion as that is their job, and they have local expertise on supply, demand and location that is all missing in your post. Valuation takes a 4 year degree, and an appraisal will confirm or amend my very rudimentary analysis, for $1000 or so. You can always order an appraisal in addition to a realtor opinion.

What does your realtor, or in the absence of one, the listing realtors, say to that price ?

Offer what you think it is worth to you.

Others likely also like the house and it's location and thus drive up house value to the point where it makes no sense to you.

Remember the seller needs only one buyer, and quality houses in good locations in a hot in-migration market always always command a high price. This will also apply when you sell, for well over $1M in a few years or decades down the road.

As I have stated elsewhere, buy the biggest house you can afford, as it is often your biggest investment, it will be a tax free gain and you can enjoy living in it [unlike a stock or income producing real estate portfolio].

Thus, if this house is truly a great fit in a great location for you and your family for the next decade or so, aim high in your offer price [as will other competing buyers].

Let us know your further analysis and how it will pan out !

Dear Greg and Thomas, First of all, thanks so much for taking time to reply. I see a lot of wisdom and experience in your response. I think I'm lucky to have stumbled on this website. I missed to mention that the house is listed at $700k. The house is definitely great fit for me and my family and we could totally see ourselves living there when we entered the house. We have seen dozens of houses, but none had this feeling. We were just worried that we would over-react to this emotion. We did think that $660k is the right price for the house, but that is only using the next door house as a benchmark. So, we are going to bid for it. Our realtor compared then prices and thinks the house will ultimately go at 680k, as most houses sell at 96% of asking price. But that's just a wee bit above our budget :-( If we discount the lot difference and living space difference as the difference is too less to matter (that's what some people tell me :-) ) maybe 680k looks reasonable. A 70k upgrade may make the house comparable to the neighbors. Does the law protect us from being duped? (just asking) the seller did communicate to us that one couple visited it twice and another showed interest. Thank you once again. Salai

If you are "stretching" your budget to purchase, you have your answer
Do not purchase

The vast majority are incapable of managing their emotions when it comes to this.

housingrental

If you are "stretching" your budget to purchase, you have your answer

  that depends on your future incomes or income expectations. Not every economy or job is falling, some are actually rising !! This is undisclosed in this post, so every person has to come to a personal decision here that fits their personal life situation & view !

Good post Rickson :)
Thomas - 99% of people think this way. No one knows the future - if they'll get the raise or be out of work :) - better safe than sorry

If you are planning on a 700K purchase, I would hire a professional appraiser (who does not have any emotional attachments to the deal). 

asanchez

who does not have any emotional attachments to the deal)

Only after you have the property purchased conditionally on financing, for the bank. Since he loves the house and there are multiple parties, he may have to bid over list price.

A house purchase, a once a decade event, IS an emotional event.

I disagree with previous posting as I see a lot of people buying based on emotions (including some investors) when things change (divorce, jobs offers, relocation) they get stuck with the dream home. As per my previous posting, if you are getting emotional then get a third party to give you some feedback so that you know where you stand. 

asanchez

.. as I see a lot of people buying based on emotions (including some investors) when things change (divorce, jobs offers, relocation) they get stuck with the dream home. 

fair comment for investment property.

Not so fair for a personal home you spend a majority of your time in. It is more than money that is involved here, namely your life. Thus overpaying for a dream house or location is OK, as the next buyer will also pay top $s. Houses in good locations will always always command a premium.

Of course, it helps to get the facts straight, and one fact (besides appraised house value) is your current and future expected income, and of course for some folks those future expectations are more murky than others.

Perhaps I am biased, but we have always lived in nice houses, and I always made a ton of (tax free) money on sale, due to location and house quality. To this day I think that for your personal home you should err on the high end on what you could afford. Having said that, if you now, for example, that your current income of 2 wage earners is going down to one or 1.5 due to kids perhaps for many years, then budget accordingly. I also believe that you should put down 20% minimum to get the best mortgage rates and not be overlevered; but a tax free gain is still a good idea especially if you can live in it for many many years and enjoy it.

Again, different strategy from a pure investment property where price is far more paramount.

Hi Thomas

I understand your viewpoint

I'm from the perspective that you have had great success - and the high income and assets that go with this

There are unfortunately more people in a different situations than you - and when the roof needs replacement, or the job is transferred to Cheyenne, Wyoming, or the house does not increase and value and the sacrifices in sports / eating out / vacations / clothes / etc. to pay for the extra property tax / utilities / landscaping / etc. most people's dream home needs to be sold ASAP.....If stretching to afford a 2400 sq ft court home, I recommend the buyer purchase a 2000sq ft. one and sleep easy :)

ThomasBeyer

To this day I think that for your personal home you should err on the high end on what you could afford.

 

I suppose this is true if your personal residence is your retirement plan... however, i feel you are better off living in a less expensive home so you free up more money for investing.

Just my thoughts...

jon

Being "house poor" is not a good way for the average income earner to live their life. Rarely is the purchase of a family home looked upon by the individual primarily as a investment. They have to live somewhere therefor selling simply means spending to buy another one. Yes they appreciate the value when they sell to pay for their nursing home costs, or they die and there kids get the win fall, but that is too late in life to enjoy the investment.
Home ownership is primarily a life style choice not a investment choice.

As a investor it is a different story. If you want to make money with a personal residence throughout your life you should buy the most expensive home you can afford but staying in that home long term is not the best financial decision. As a investor you should be looking to move up every 5 years to realise the highest return on a tax free profit. Buy right, realise initial appreciation in new home value, sell, repeat.