How to Determine What to Bid on a House

The question that every potential house buyer asks when considering putting a bid on a house is - What is this house worth to me? This question, and the answer, will have positive or negative financial implications when it comes time to sell the house.


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    Understand how many people determine list prices. The listed price of a house is the ‘price point’ or expectation that a seller emotionally thinks his house is worth. It’s simple when you put it down on paper. Often sellers will establish a value based upon the listed price of other houses in their area, and then add additional value based on the number and type of amenities they have in the house. It’s not really logical, and it is what’s being done.
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    Determine what the square footage of the house is. Every MLS listing program includes, among other criteria, what the square footage of the house is, and that only includes the livable, heated space. It does not include the attic, the garage, workshops that are in the garage, decks, porches, or extensions that are not part of the house.
    • If a house listing does not include this data, do not consider buying the house as the seller has something to hide or, take the measurements of the house yourself with a 50‘tape.
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    Calculate price per square foot. A very basic common denominator is what it costs to build a house per square foot, any house including stairs, closets, pantries, and bathrooms, because these are livable and heated areas within the house.
    • Divide the listing price of the house by the square footage stated in the MLS® description
    • As an example, if the listing price is $335,000 and the square footage is 2,600’, then $235,000/2,600 = $129 per square foot.
    • This is for a basic design house with no amenities, such as a swimming pool, hot tub, sauna, lush gardens with statues, intercom system, burglar alarm owned, etc.
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    Beware of overinflated prices. To ask an agent what the house should be listed for is like asking the fox to count the chickens in the coop! However, this is still an appropriate question, because if the agent gives the seller a price to list the house at that is lower than the seller’s expectation ‘price point’, the seller will not sign up with that agent. Therein lays the dilemma.
    • The ‘to be’ listing agent must find a way to get the listing from the seller without creating a ‘deal killer’ of telling the seller something he doesn’t want to hear, so the agent cedes to the seller’s wishes on the price to list the house. The listed price is an over-inflated price!
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    Use the MLS. The MLS program records every single transaction of the seller: when the house was bought, the price that was paid, when it was first listed on the MLS site and at what price, and every single date it was de-listed, listed again, delisted, and its present price, including the MLS agent’s, for every viewer to see.
    • Sellers don’t believe that the price history on their house is transparent to the world and the worst thing they can do is have their house on the market so long a time that it becomes, ‘stale property’. When that happens, the offering prices drop as fast as a vulture spots a meal. This is a good time to put in a bid if you want the house.
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    Beware of CMAs. If the listing agent doesn’t want to wait 6 months or more for the over inflated value of the seller’s house to be reduced, then the agent might advise the seller to have a CMA done, known as a Comparative Market Analysis. This study, of which there are about five software companies that offer this type of program to real estate agencies and agents, allows the agents to make house selections from the MLS site that closely match the criteria of the listed price for sale.
    • CMAs compare house prices for offerings that are similar in size and age, but they don't specify how to compare amenities, like a hot tub, sauna, acreage, swimming pools, appliances, etc.
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    Do comparisons with other houses for sale in the area. Based upon their price per square foot, see if they were reasonably priced or way over priced. Look online for options that compare to your home. Find out what they sold for - make sure they're similar in size, location, and amenities offered.
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    Remember that ultimately, he buyer always determines the price of a house! There is no absolute value to be determined by anyone valuing a house except by a certified appraiser who is familiar with your neighborhood. An amenity to one buyer may be a detriment to another. If you don’t get up to bat by offering what you think a house is worth to you, you’ll never hit a home run!

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Categories: Buying Property