When You Find “The One”

I’ve had buyers tour 30 or more homes before making an offer. I’ve also had people buy the first house they walked into. You just never know when the right one will come along. When it does, it’s important to be ready to act.

As discussed, having a pre-approval letter or proof of funds is a critical first step. That will be submitted with your offer, and give the seller and listing agent confidence that your financing is in order.

The next step is to review comparable sold properties, aka “comps.” This is the best way to determine whether or not a house is priced correctly. The process is usually pretty straightforward, but occasionally homes can be difficult to evaluate if they’re either unique in some way, or are in a rural area with no nearby properties that have sold in a while. Here’s an example:

1210 Huntsman Dr., Durham ($599,000)

4BR, 2 baths, 2,854 sq. ft, .85 acres, built: 1980

Price per square foot: $207

Comparable Sold Properties

1109 Huntsman Dr., Durham

4BR, 3 baths, 2,614 sq. ft, .87 acres, built: 1982

Listed for $675k, SOLD in Nov. 2024 for $710,000; Days on market: 6

Price per square foot: $272

1103 Huntsman Dr., Durham

4BR, 2.1 baths, 2,355 sq. ft, .87 acres, built: 1985

Listed for $650k, SOLD in Jul. 2024 for $681,500; Days on market: 6

Price per square foot: $289

In this instance you’d have a high degree of confidence that you’d be making a sound investment. The comps sold in the same subdivision within the past 6 months, and the target property’s price per square foot is well below that of its neighbors. Reviewing comps is also important because it’s the same exercise that your bank will go through if you’re getting a home loan. An appraiser will go to the property to do his own assessment. In normal market conditions, homes typically appraise at the purchase price. However, in hot market, when homes receive multiple offers and sell for far above their list price, the appraisal can be a thorny issue.

Let’s say you go under contract on a house for $525,000. The bank’s appraisal comes back at $515,000. This is a problem because the bank will only lend based on its own determined value, so you have a shortfall of $10,000. In a normal market environment, buyer and seller would collaborate on an agreement amenable to both sides. For example, the seller might agree to drop the contract price by $5,000, effectively meeting the buyer in the middle.

In an overheated market, however, buyers will often sign a document that waives the appraisal contingency. This is frequently done in a multiple offer situation to make one’s bid more appealing. Bear in mind, there’s risk involved with this strategy. If an appraisal comes back $25,000 short and you’ve agreed to waive the appraisal contingency, you’re more or less stuck. It’s possible to appeal an appraisal, but there’s no guarantee that you’ll get a different result. Just something to keep in mind—and a reason why a careful review of comps is critical prior to submitting an offer.