When Fred Meyer buys a new car, he takes a quick and systematic approach. First he browses a few dealers to pinpoint the exact model he wants. Then he requests price quotes from multiple dealers and takes delivery of the lowest-cost vehicle. That way he never overpays.
But when Meyer -- a veteran real estate broker and appraiser -- helps homebuyers decide how much to offer for a property, he does much more research on their behalf. He searches databases to see what homes in the same area have fetched recently. He also drives the clients by these closed sales to ensure they are truly comparable.
While a 2017 Honda Pilot is a generic purchase, a three-bedroom bungalow on Pine Street is not. It's not only that property values can vary widely due to differences in interior and exterior features. Values can also differ greatly due to locational differences. For example, a house on one side of a neighborhood could be worth significantly more than a very similar one on the other side because it's further from a congested roadway or closer to a neighborhood school.
"Determining the market value of a new car is absolutely not the same as figuring out the true worth of any given home. With cars you can have identical products. But nearly all homes are different," Meyer says.
Real estate pros say it's critically important for homebuyers to get a grip on local property values before they shape an offer.
"For buyers to depend on their hunches is a total mistake," says Tom Early, a real estate broker who was twice president of the National Association of Exclusive Buyer Agents (www.naeba.org). "If you overpay, you'll regret that for years."
Early says savvy buyers narrow their research to the precise area where they're looking. If you like a house on a certain street, you should focus there exclusively. Data gathered on state or national real estate trends will have little bearing on your situation.
In areas of the country where property values are high and still rising, it can be challenging for purchasers who've done their research to resist the urge to overpay, says Svenja Gudell, the chief economist for Zillow, the online real estate database group.
Here are a few pointers for buyers:
-- Look to the Internet for preliminary data on local valuations.
Early notes that several websites offer free information on property values and can prove a valuable resource. For example, he cites Zillow.com, which allows you to search data at either the property or neighborhood level.
However, he cautions buyers to keep in mind the limitations of such websites.
"The best they can do is point you in the right direction, getting you into the right ballpark," he says. "In many cases, these websites will either overestimate or underestimate values," he says.
Meyer says websites are no substitute for guidance from an astute real estate agent with a comprehensive knowledge of the area you're searching. Such a local specialist can often recite local property sale statistics from memory.
If you're considering purchase of an unusual, very upscale or one-of-a-kind property and are truly stumped about its value, Meyer recommends you consider hiring an appraiser.
"Appraising is an often forgotten profession, at least for homebuyers," Meyer says.
-- Take advantage of your agent's data sources.
The classic method used by real estate professionals to reach an estimation of value for a property is known as a "comparative market analysis." This technique is grounded in data on recent sales of similar homes to the one being judged.
"In those few new neighborhoods where housing units are essentially clones of each other, this process is pretty straightforward. It's a lot tougher in a neighborhood of older homes, or where every property is custom built," Early says.
"Determining value is both an art and a science. Experience plays a big role," Early says.
-- Consider neighborhood economic trends before you bid.
At a time when real estate market trends are relatively uncertain, as they are now, you need to look beyond closed deals to see where values are heading, according to Early.
"It's highly unusual for home values to rise or fall sharply in a few days or weeks -- as do stocks or bonds. But local economic factors can be hugely influential over time," he says.
For example, in an area that's heavily reliant on a single employer -- such as a military base -- cutbacks by the Pentagon or other employers can have a major impact on property values in nearby neighborhoods. Values can also ascend or decline due to changes in school district boundary lines.
"It's almost impossible to overestimate how much influence schools have in determining property values -- as can the reputation of a neighborhood with a prestigious ZIP code," Early says.
-- Review inventory levels before crafting any offer.
The supply-demand ratio has everything to do with the bargaining power of purchasers, Davis says. Therefore, your agent should keep you abreast of changing inventory levels throughout your search period.
"In areas where bidding wars are a reality, it's always a good idea to recheck inventory levels right before writing up a contract offer for a dream property. Then you're be more likely to submit an offer that's competitive with other bidders," he says
(To contact Ellen James Martin, email her at email@example.com.)