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Closing Procedures - Determining Your Offer Price

 
Once you’ve met the home of your dreams, or at least the one you prefer most that you can afford, think about making an offer on that home. Since most home sellers will price their homes a little high for room of bargain, you can start your offer somewhere below the asking price. But where is a good place to start an offer?
 
Determining your offer price is a Four-step process.
1. Comparable Sales – study recent sales of similar properties to come up with a price range.
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2.
Additional Factors – analyze the property’s condition, property’s improvements, current property market condition, and the seller’s motivation. That helps you settle on a price you feel “fair” to pay for the home.
3. Adjustment – depending on your negotiating style, adjust your “fair” price and make an offer to the home seller directly if you have no representation, or through property agency if you work with a property agent.
   
1. Comparable sales
  Comparable sales are recent sales of homes that compare closely to the one you wish to purchase. Specifically, you should compare prices of homes that are similar in square footage, number of bedrooms and bathrooms, car park spaces, type of developments, and additional features e.g. roof, garden and balcony. Since the outlook and year of completion of the home are also the factors for appraisals, you’d better find some exact model matches along the same development to compare against one another.
   
  Transaction Record
  In Hong Kong, the most easily accessible information source on comparable sales is the transaction record. Every transaction is deeded from the homeowner to the homebuyer, and most deeds are registered at the Land Registry. Some local property information providers generate the transaction record by compiling daily data from the Land Registry and combining these data with information e.g. square footage and number of rooms, and then post on the Internet. Note that the transaction record on property.hk, http://hk.realestate.yahoo.com/ and www.cnp.hk is free for the general public.
   
  Property Agent
  One problem with the transaction record is that it generally runs at least 6 to 8 weeks behind from the “closed” transaction to deed registration. The data you see is not current! The most valuable information would be the most current, of course. The most recent sale has more validity in helping you determine a purchase price. Some agents will know the sales price when the transaction is still “pending”. Thus, you can also get a comparable home sales report from your agent.
   
2. Additional Factors
  Property’s Condition
  When you tour the property you wish to buy, evaluate the condition of a property by putting the property in one of 3 categories – average, above average, or below average. There are a number of aspects you should take into account, but structural condition is the most important one. Check out all the items e.g. walls, ceilings, floors, doors, and windows, then paint, carpets and floor coverings. Pay special attention to bathrooms and bedrooms and whether the plumbing and electricity work efficiently. Don’t forget the fixtures e.g. light switches, doorknobs and drawer handles. Any missing ingredient can be a reason for your initial offer.
   
  Property’s Improvements
  You should note whether the property has undergone any substantial improvements. Most important would be room addition or removal. Then, you should know if the recent owners have carried out replacement works of wiring and plumbing. Cosmetic changes are insignificant and should be largely ignored.
   
  Property Market Condition
  During a hot market, also called a seller’s market, properties can be sold quickly and there are often multiple offers. Home sellers usually stand quite firm on the selling prices. During the buyer’s market, properties may languish on the market for a while and offers may be few and far between. Home sellers may be more flexible toward their selling price, so negotiations can begin in earnest. Sometimes, even if the offer price is far below, the seller is likely to make some counter-offers.
   
  Seller’s Motivation
  The most common “motivated sellers” are those who have already bought their next homes. They either need to liquidate the present home to pay for the next home, or want to avoid the possibility of making two mortgage payments at the same time. Family crises e.g. divorce and lay-off can also push the sellers to make a quick deal. With the seller’s permission, property agents will post this information along with the listing. When you come across with such a listing, ask the agent if the seller is truly motivated or it is just an ad designed to elicit interest among homebuyers. For “dual agency”, since agents represent both homebuyers and home sellers, agents are legally prohibited to provide homebuyers with information that would give homebuyers an advantage over home sellers. In this case, if you want to know the seller’s motivation, you should ask the seller directly.
   
3. Adjustment
  Comparable sales information helps you determine a basic price range for a particular home. Adding in the various factors like property’s condition, improvements, market condition, and seller’s motivation help you determine whether a "fair" price would be at the upper limit of that range or the lower limit. Perhaps you may even feel a “fair” price is outside of that price range. The "fair" price should be approximately what you are willing to agree on at the end of negotiations with the seller. The price of your initial offer is totally up to you and depends on your negotiating style. Most buyers start off 5% lower than the price they eventually want to pay. Although your agent may provide advice and guidance, you are the one who makes the decision. The price you put in the offer is totally up to you!
   
Your initial offer on a home is not necessarily final. Remember there is always room for negotiations. Once you're serious about buying the home, you may need to make an earnest money deposit as a show of good faith.