These days, it can feel difficult to determine whether or not you are getting a good deal on your home purchase. Over the past two years, the United States has seen unprecedented trends within the housing market. From over asking price cash offers and homes selling merely hours after hitting the Multiple Listing Service (MLS) to the current high-interest rates, potential home buyers may be left wondering about what exactly constitutes a good value on a home purchase.
To figure out if you are actually getting a good deal, ask yourself these four questions.
Can I Actually Afford It?
The first factor in determining if a home is a good deal is to make sure you are not buying more home than you can afford. Shopping around for the best mortgage rates, running numbers on various loan products, and adding in taxes, insurance, and homeowners association fees can all quickly add up. Experts say that your monthly mortgage payment (including those fees) should not exceed roughly 25% of your take-home pay. A home that is too much of a financial stretch, no matter how great of a bargain it may seem, is never actually a good deal. Stress and worry over affording your home will make you miserable inside those four walls.
What Are the Comps?
Comps is simply shorthand for comparables. In real estate comparables refer to those properties, likely in your same zip code that have similar features, square footage, bedrooms and bathrooms, condition, and desirability of location. You will want to be sure you don’t just compare your home with others that are listed for sale, but also with those that have recently sold. A licensed real estate will have more accurate numbers than doing a Google or Zillow search.
What is Your Sale to List Ratio?
According to BankRate, “As its name implies, the sale-to-list ratio (aka the sales-to-listing or list-to-sale ratio) measures the difference between the final purchase price and the original asking price of a property. You can determine the ratio by dividing the final sale price by the last list price and multiplying that number by 100 to express the ratio as a percentage.” Additionally BankRate shares, “Whether you’re a buyer or seller, looking at the ratio of the selling price to the asking price can help you gain insight into how to negotiate a transaction. You may find additional value by calculating the sale-to-list for a group of homes, which you can do by adding up each home’s ratio and using the average of the total.”
What Do the Appraisal and Inspection Tell You?
Some recent real estate market conditions had potential buyers skipping straight past appraisals and inspections and making sight-unseen offers on home properties. This is never a good idea, as appraisals and inspections can reveal more about a home’s true worth. From its appraised value to an inspection revealing potential costly repairs or updates, these can be additional safeguards and added layers of protection to ensure you’re getting the best deal.
Finally, as you ask yourself these four questions, it may feel overwhelming to find the answers on your own. As always, choosing to work with a real estate professional can not only aid in the process of finding the right home, but also they can help you to sift through the abundance of information to help you make sure you are getting a good deal on your home purchase.