Buyers don’t want to pay more than market value—but what is market value?
Many buyers in the market have been saying that they don’t want to pay above market value for a home. But here’s the thing: Market value is not a number. Market value is a price that a buyer is willing to pay based on demand. So understand that there’s no specific price set when it comes to market value.
Now, you will want to look back at the neighborhood’s history to see what prices homes have sold for, what condition they were in, what time of year it was, and what demand was like at the time. Those are all factors that are considered when a home’s market value is decided.
Buyers who tell me they don’t want to pay over market value are often the buyers who may end up losing out on the home. Here’s an example to help me explain:
A few years ago, my parents were looking for a condo in my neighborhood. For them, being close to me was the most important factor in their purchase. There was a home that was listed for $620,000, and at the time, the market value was probably between $615,000 and $625,000. It was a strong market, the home was priced right, and it looked great.
The listing agent for the condo said they had offers of up to $625,000 and that they counteroffered everyone. Since this neighborhood was so important to my parents, my mom said to counteroffer them at $640,000. My dad asked me if that was too much. I told him that there’s no such thing as too much—they would be paying more than what recent homes have sold for, but if it made sense for them to pay that much and it was in their price range, $640,000 would be a great number.
My mom looked at us both and said, “I don’t want to play any games; offer them $642,000.” We submitted that offer, which was accepted, and they’ve been living in that property for two years now. They absolutely love it.
The great news is that the minute the transaction closed and became official, that price became the market value. Now that property is one that appraisers will look at to determine what homebuyers are willing to pay in a specific area.
With inventory and interest rates so low and demand so high, we’re seeing homes sell for more than what appraisers can justify, so many buyers feel like they’re overpaying for properties. In some cases, they may technically be, but remember that as long as the monthly payment is within your comfort zone and you’re getting a fixed rate on your loan, then it doesn’t matter if you spent an extra $5,000 or $10,000. At the end of the day, once your home closes escrow, the next one will be listed for slightly more and probably sell for more, thus continuing the trend.
If you want to dive deeper into the subject of market value or have any questions, don’t hesitate to reach out to me. I’d love to talk to you.