Reader Question: We are considering making an offer on a home. We are both employed in jobs that require some negotiating skills, but this is our first foray into real estate. We have built a small list of potential points to use in the negotiation if we move forward. What is the one tip you would share that most homebuyers do not consider in a home negotiation?
Monty’s Answer: The most challenging part of the negotiation is often more emotional and fraught with myths and misinformation that can override data and logic. Here is a link to other negotiation tips at dearmonty.com. With this caveat, here is one tip, based on personal experience. Most home sellers and buyers may have a general sense of the market. They likely do not know the neighborhood’s hyper-local market conditions when they make, counter, or accept an offer.
All homes are in hyper-local markets. Rural property is likely a substantial hyper-local sized area. Suppose a house is a unit in an extensive condominium development. In that case, the building or buildings themselves could be the hyper-local market. A municipality with seven or eight-thousand homes would have many hyper-local markets. Hyper-local is the one tip overlooked.
Homes in hyper-local markets are generally in a close age-range. They are also likely to be in the same price range, and the neighborhood desirability level is similar. While comparable sales from across town may possess similar amenities, the desirability levels may not be the same.
How to calculate
This data can be helpful information to consider when making an offer when placing a home on the market or changing a home’s price on the market. Below is an exercise to determine where a hyper-local market stands on a particular date.
- The number of similar homes that have sold (a.) in the neighborhood in the past six months.
- The number of similar homes that are currently for sale (b.) in the neighborhood.
- a. divided by six months equals the average number of homes sold per month (c.).
- b. divided by c. equals (d.), the statistical length of time a home will be on the market.
For example: With sixteen home sales and four homes on the market, the calculations suggest that the average house will have a 1.5 months market time. This calculation suggests it is a strong seller’s market. If the number of homes in (a.) was four, and (b.) was sixteen, the statistical length of time on market would be 23+ months, a strong buyer’s market.
Most real estate agents do not have the time or the inclination to offer this hyper-local service. As a buyer, would this data influence your offer? If you are a seller, would this data affect your asking price?
This analysis is not science. It is pertinent information. This data is not to make decisions but to provide information that may be helpful when combined with other considerations in your particular situation. Variables in the market place and factors such as new property coming on the market, pending sales after this date, and more, make comparisons imperfect. This exercise is superior to having no reliable information to consider at all.