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Good deal….or not a good deal? Take the QUIZ

by Joe Montenigro on February 25, 2009 · 0 comments
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question-mark_cartoonWhen you buy an house, how will you KNOW whether you got a good deal or not?   A commom misconception is to see how much the seller discounted the asking price and then decide if that’s a “good” discount or not.   I’m not sure how you magically guess the appropriate discount to qualify for a “good” deal, but that’s another story. So, here’s a QUIZ….. Which house is a better deal?

1. House 1: Asking price $100,000, purchase price $80,000.
2. House 2: Asking price $100,000, purchase price $105,000.
3. Neither house
4. Both houses
5. All of the above.

If you answered 5, you’re clearly confused and probably shouldn’t walk while chewing gum.   If you answered, house 1, what if the last 3 homes like house 1 sold for $50,000?   Would you want to change your answer?   If you answered house 2, what if the last 3 homes like house 2 sold for $150,000?   Would that change your mind?   If your answer is 4 that both houses are equally a good deals, technically, you really have no idea if either one is a good deal or not because you don’t know what other homes like it have sold for and that’s why the correct answer is 3, neither.

Homes are generally valued by the comparison approach which means we compare the house to similar homes that have recently sold….  called comparable sales or comps, for short.   You absolutely, posititvely MUST look at the comps to know whether or not you got a good deal.   You absolutely, positively must NOT use the seller’s discount from asking price as an indicator of whether you got a good deal.   Of course, we’re ignoring that you and your family have to like the house, it has to fit your needs and make you happy….  if the house makes you and your family happy, you can disregard the comps althougher because it’s a GREAT deal.

Thanks for reading
Joe

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