Many things can influence the asked price. Investors should not review formula answers in isolation, depending only on GRM and cap rate. Remember, the price paid for property reflects the price that seller and buyer both accept, regardless of what appraisers say. Among the factors influencing price are the following five considerations:
1. How anxious is the seller? A seller might be very anxious to sell. Some sales involve moving to another pan of the country and buying a new house, a deadline for
starting a new job and getting children started in school, and the desire to close out business in town and go elsewhere. The degree of seller anxiety affects the price: the higher the anxiety, the more bargaining room. The quick-sale price is the bargain price a seller will accept in exchange for a fast close. On the opposite extreme is the firm price, the price a seller believes to be fair; a firm-price seller will not accept offers below that price and is willing to wait.
2. What is the current supply and demand? If sellers have to compete with a large number of other sellers, higher-priced property moves slowly, if at all. In such markets, bargains are necessary to get a sale. A motivated seller might have to take a substantial discount 10 get a sale in a slow market.
3. How does the price compare with prices of similar properties in the area? Just about all sellers realize that market value depends largely on how other, similar properties are priced and, to a greater degree, the price for which they sell. Properties priced above those levels simply do not sell for the asked price.
4. What is the condition of the property? Properties often have several different prices at any given time. Deferred maintenance levels dictate various pricing adjustments. There may be an "as is" price and an "if fixed" price. In other words, if the buyer will have to fix the problems, that will require a price reduction. If the seller accepts responsibility to fix defects, that supports the asked price. Being aware that there are various prices depending on these points helps you to identify value in the market, and to negotiate accordingly.
5. Is financing available? For many people, financing is the most important part of the
deal - more important than price itself. Even in a market with plenty of bargains, there is no point trying to get a deal if there is no financing available. It becomes a problem for buyer and seller alike. The unavailability of funds (or at least, the unavailability of funds at a practical cost) means there is no real market unless sellers are willing to
earn mortgages and buyers can bring a large sum of cash to the table - not always practical or possible.
The true meaning of "market value" is important both to buyer and to seller. Given that there are numerous definitions of price, you should be able to identify the price you are hearing. For example, a real estate agent may inform you that "the seller is motivated," or "the seller will look at all offers." These are messages that the price is negotiable.
Another way to judge whether you can make an offer below asked price is to evaluate the differences between asked prices and final sales prices in the recent market. This information is readily available from your local Multiple Listing Service (MLS), local brokers, or local banks. This difference between asked and sales price is called the spread. As the spread widens, the indication points to a growing buyer's market; as it narrows, the indication is that a sellers market is developing.
Another indicator to watch is the trend in price itself. A drop in prices means that
the market is getting "weaker. Or does it? Analysis is not simple enough on the surface to be able to clearly recognize the real meaning behind a trend. Cycles do not move decisively in a straight line or pattern, but are characterized by starts, stops, and reversals. Cycles are hard to predict because of the false indicators.
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