How to Calculate the ‘Right Price’ to Pay for a Property
How do you know when the asking price is the right price?
So how do you calculate the “right price” to pay for a property? At Stacks, we specialise in finding properties and negotiating a great asking price. We have developed a formula which anyone can use to ensure they know how to calculate the right price to pay for a property.
Property Prices and Trends
There’s lots of property on the market that is overpriced, and yet others go for above asking, so how can you commit to a purchase without knowing how to calculate the ‘right price’?
Overvaluing occurs for several reasons. Estate agents can find themselves in a tricky position, trying to win an instruction when competing in some kind of beauty parade. Overvaluing may be the only way they can take the instruction. Alternatively, they may be pressurised by the vendor to put the property on the market at a higher price than they would otherwise recommend.
Putting a market value on houses is an objective exercise – three agents will rarely come up with the same value on a property, and the more unusual the property, the greater the discrepancy is likely to be.
How to Calculate the Right Price to Pay for a Property
So how, as a buyer, do you establish the ‘correct’ price for a property?
The asking price is rarely the right buying price. Our advice is to view the asking price as a guide price on which to base your calculations.
There are several factors to take into consideration, but if you do your research, and use this equation to make sure you don’t overlook crucial elements, you will come up with a figure that is a sound basis from which to negotiate.
Property Price Calculator Formula
Stacks’ magic formula for the ‘right price’ is this:
B = A – M – V – Bf + CI + R
Where:
B = Buying price – the price we are calculating
A = Asking price – the price the property is currently on the marketing for
M = Market discount – Are there any local market conditions and recent comparables. This will help with understanding if the asking price is in the correct bracket for the area.
V = Vendor desperation – How badly the vendor needs to sell. Do they need to move quickly or can they afford to wait for the right buyer?
Bf = Buyer flexibility and attractiveness – How flexible you are as the buyer. Do you have a time frame in mind? are you a cash buyer? Do you have a property agent representing you?
CI = Competitive interest – are there other buyers interested? How serious are they?
R = Rarity – How often a property like this one comes onto the market
As equations go, it’s not entirely scientific. And it’s not straightforward putting a value on ‘buyer attractiveness’ or ‘vendor desperation’, but you can come up with educated estimates.
For instance, if you are a cash buyer who is happy to fit in with the vendor’s desire for, say, a long completion date, then you could look at deducting somewhere between 2% and 3%. And if the vendors are going their separate ways and anxious to move on, then another 5% discount could be on the table.
The ‘right price’ for you may not be someone else’s right price – you need to do some deep thinking and calculating to determine if this is the only house for you (probably not, but perhaps). Or whether you are the type of person who needs to have ‘done a deal’ in order to be satisfied with your purchase.
Tips for Calculating the Right Price to Pay for a Property
Don’t start too high
Remember, once you’ve made an offer, there’s only one direction the price is going to go, and that’s up. So don’t start too high.
Why
A useful exercise is to ask the estate agents how they arrived at the price – was it based on some science (if so, what), or just what the vendor thought it should be?
Be likeable
However punchy your offer, it pays to be a likeable buyer. Nobody likes an aggressive purchaser and some vendors will refuse to deal with you any further if you push too hard – remember this is someone’s home and not just a commodity. And always negotiate through the agent, not directly with the vendor.
Don’t be pressured
Don’t be pressured by the agent, and don’t always believe that there’s another buyer who has just happened to come out of the woodwork. But be careful, sometimes there really is, so don’t try and be too clever. It’s a calculated risk how far to push negotiations, so don’t back yourself into a corner and allow a third party to nip in whilst you are procrastinating!
In the end, the price agreed has to be one that both buyer and seller can live with, and which will encourage all parties to co-operate towards a successful exchange and completion.
Working with Stacks Property Agents
The best guarantee to be sure you are paying the ‘right price’ for a property is to have the ‘right team’ on your side.
Your local Buying Agent knows the local market, competitive interest and can position you as the best purchaser. Find out more on how Stacks helps people just like you here.
