Is it right or fair to take into account what a seller paid for their property when considering an offer?
I looked at a property over the weekend, and the sales price was just reduced from $850K to $700K. Its not a bad deal, but not a steal either. I certainly wouldn't steer a client away from it because of the price. The current owner clearly updated nearly everything in the main house (its a small farm).
She had told me she gutted the entire structure and that everything was new from the flooring to the drywall to the kitchen, etc. From the outside it looks very dated, but once you are inside it is gorgeous and modern. So I clearly believe she had to have spent anywhere from $50K to $70K in fixing it up.
Now, when considering the offer - I always tell my buyers what the sellers paid for the property and when. Especially if it has been in the last 10 years or so.
On this particular property the owner bought it for $600K in 2004. Clearly, she bought at near the height of the market and is now selling at the low end of the market. She's selling because she's getting married and her future husband lives out of the area.
Fair Market Value
On some properties (townhouses, condos, etc.) you know what the price is based on recent sales. I mean, you're going to be within a few thousand of what sold last week in the same development. Especially in today's more stable market.
On single-family homes, you're going to have a little more fluctuation because of differences in models, features, lots, etc - but you're still going to be within a $20K to $50K range - depending on the neighborhood.
On larger properties (farms, large lots where acreage can vary, number of outbuildings, etc.) - you're probably looking at a spread of around $100K to $150K top to bottom.
At almost 3 acres the land alone is probably worth about $400K based in part on its zoning, and there are two residences and a very large pole barn on the property.
Taking that into account - this house is priced fairly. It would certainly be a steal at anything below $600K and it obviously was overpriced at $800K because it wasn't able to sell.
Now here's the deal.
Right now, the owner will takeaway around $100K if someone paid full-offer with no closing help. After she pays her closing costs and real estate commission, she'll probably just break even on all the money she paid for upgrades.
So maybe the $700K is a fair price.
But, would the price be fair if we learned she only paid $500K or even $200K in 2004? Or would we try to offer her an even lower price?
So when you make an offer, how much do you take into account what and when the owner paid for the property?