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If you are looking for a home you should be viewing each house you visit within the framework of what you’re willing to spend (asking/offer price) for the home relative to its Fair Market Value (FMV) subject to the condition of said home. Work with your real estate professional to determine the FMV of the houses you’re viewing. FMV will be determined based on many factors such as the style of the home, the size, the location, age, quality of materials, etc. in relation to comparable homes in the area.
You should have a good idea of the approximate values of both single story homes as well as two story homes, for there is usually a moderate difference in value per square foot. Make sure you understand the rule of diminishing return for size, for example, larger homes generally are worth less per square foot than a smaller home.
But it’s not just about price per square foot. That ratio is a good “quick and easy” way of viewing the asking price of a house compared with the averages in the area, but don’t count on that to predict the FMV of the home. Again, many factors must be taken into account. Before you place an offer, your agent should be able to justify why the seller is asking the price they are compared to the market.
For example, the house could require many repairs to make the home habitable, therefore, the asking price should reflect the simple formula (Asking Price = FMV – Cost of Repair). If the asking price doesn’t equal the others, then the house won’t sell quickly and as a buyer, you can equalize the formula by offering less than asking price.
On the other size, when you are well acquainted with the market, a house that is underpriced will be obvious and as a buyer you should have NO problem offering more than asking to win out against other bidders with confidence that you will not face an appraisal issue down the line. Again, it comes down to knowing the market and being informed of all the variables that affect FMV.
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