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9 Steps to a Wise Purchase, Car or Otherwise (it involves questions)

9 Steps to a Wise Purchase, Car or Otherwise (it involves questions)

Remember? I bought a car. I wrote about it in my last newsletter, which had the highest open rate of any newsletter to date.  (Past newsletters are at: homebuyerassociates.com)

I arrived at my car’s value using a method similar to how we arrive at value for homes for our clients. The goal is to keep emotion in check and purchase the home based on as objective information as is available.

Homebuyer Associates’ value analysis is different than traditional agents. Working with a traditional real estate agent is analogous to working with a car salesperson. “Objective” would not be part of the equation. Why would it be? Each has a product to sell.

Look people, we’re talking about money – your money. Ask the 9 questions below so you don’t waste dough.

When I (or our other agents) meet with potential clients, (over coffee of course) I often use the example below:

You know someone who has purchased a home. In talking to you, they recounted how they were able to get the seller down and were able to buy the home (asking price $215,000) for $210,000. They felt good about that.

The question your friend didn’t ask? How much is the home worth?

To your friend’s financial detriment, he fell prey to the behavioral economic theory of anchoring. Anchoring is defined as “relying on the first piece of information received (the $215,000 asking price) when making decisions and judgments.” This initial information becomes the point of reference for negotiation – the amount from which the buyer and seller begin to negotiate.

If the home was worth $200,000, then your friend, by “getting the seller down,” only wasted $10,000 instead of $15,000. A better method? Determine the range of value for the home and negotiate within those parameters. Forget about the anchor price as it may drown you financially.

Ask the following:

1. Was the home previously on market and at what price?

2. How many days has the home been on market, including previous listings?

3. What is the assessed value? If new construction is it land only?

4. When did the seller buy the home and at what price?

5. How many homes are for sale in a 1.0-mile radius and what is the median price?

6. How many homes sold within the last year in a 1.0-mile radius? What are the median and average sold prices?

7. Of the homes found, select 3 that are most similar to the home being considered for purchase. Make adjustments for property interior/exterior condition. What are the low, median, average and high sale prices?

8. With the information from #7, prepare an analysis using the 3 most similar homes. With the analysis completed ask yourself, “What is the range of value for the home? The top line of the analysis becomes the true anchor.

9. What is the seller’s reason for selling and gap between price paid by the seller and asking price?

Homebuyers must pay close attention to information. Information can counter emotion. In the traditional real estate system, I fear agents use information to confirm the anchor price, not locate the true anchor and range of value.

If you aren’t using the services of Homebuyer Associates, the questions above may help you get to value. The problem is you don’t know what you don’t know…and the data should to be analyzed by someone who does work for you and has done it over 1,500 times.

Thanks for reading,
Michael D. Holloway

Homebuyer Associates
Michael D. Holloway / Seamus Holloway / Mike Dupar

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Homebuyer Associates
1835 N. Riverwalk Way
Milwaukee, WI 53212
Phone: 414-254-4129