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How much a house is really worth?

How can you tell how much a house is really worth? answers your questions on business, personal finance.
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Last week's column about saving for a first home drew a big response from first-time home buyers, including Jenny in Connecticut, who wants to know how she can figure out how much a given house is really worth. A number of real estate agents, meanwhile, took issue with our observation they don't always give buyers the best advice.

What is the best way to determine the "true value" of a house? I'm currently 25 and in no hurry to buy a home, but would like to be as informed as I can be for when the time is right. What information is available short of hiring a real estate agent?
Jenny C., Norwalk, Conn.

The only way to truly value a home is to sell it. A house – or any other piece of property – is worth the price a willing buyer and willing seller agree on. So forget about the prices you see in the advertising section of the paper: that’s just the starting point.

The best way to determine home values is to look at the prices of “recent sales” that are printed in the local newspaper, based on sales records recorded in the town or county clerk’s office. If your local paper doesn't publish these, ask a real estate agent or your town or county clerk if they have a list of recent sales.

If you see a gap opening up between asking prices and selling prices, that's a sign that the market is softening. If so, don't feel you need to bid full price when you find a house you like. (Another statistic to look for is the average number of days houses sit on the on the market before being sold. If that's getting higher, the market is slowing down and you're in a better position to negotiate a lower price with the seller.)

The problem with using these sale prices is that, once the sale closes, you won't be able to see the home (other than to drive by it) to get a feel for how much house that purchase price just bought. So by all means, call up an agent and ask to see five homes in a price range you’re considering in areas you’d like to live.  It’s free: the agent’s commission is paid by the seller, not the buyer. (More on that in the next question.) Be ready to be grilled on when you plan to buy: most agents will press you to find out how “motivated” you are. If you don’t feel like working with an agent, just look in the paper for weekend open houses and go take a look.

The other thing to keep in mind is that real estate market conditions can, and do, change fairly quickly. Your area in Fairfield County, Conn., for example, has just come off one of the hottest markets in its history: front lawn bidding wars via cellphone on the first day of the listing were not unheard of. That’s changed. Houses are sitting longer, and fewer sellers are getting “top dollar.” So if you’re a few years away from buying, the market conditions you see now may not be in place when you decide it’s time to buy. If the market continues to move toward a “buyer’s” market you may be better off waiting anyway.

… I really appreciate the continued stereotyping of Realtors, being greedy selfish sharks, at the ready to encourage buyers to spend more than they have so the Realtor can collect a high commission, and then it's so-long-sucker.  Thank goodness the media is there to warn all the buyers out there of our unscrupulous agenda. Seriously, you can not be that ignorant!  This is NOT how I do business, nor do any of my fellow professionals, at least as far as I am aware in my area.  Try revisiting your college ethics class and consider the message your sending, blindly in my opinion. Your article is supposed to serve as a Q&A Forum for average folks seeking information and advice on their business and personal finance matters…. 
Don H., Georgetown Tex.

In my lifetime, I’ve rented, bought, sold, bid on, mortgaged, and refinanced more than a dozen times. For the most part, the people involved in these transactions were honorable and honest – within the limits of the world known as real estate.

All you have to do, though, is pick up a newspaper in any part of the country to see listings that are commonly filled with gross distortions, if not outright lies – like the listing that offers a “water view” on a property that has a glimpse of a marshy pond in winter when the leaves are down. This “real estate speak” is a language that describes a world only real estate agents live in.

Despite the heartwarming ads showing families excited to move into their first home, and the friendly smiles and fresh-baked cookies that greet buyers at open houses, yours is an industry that is selling a product – often to people who are ill-equipped to make independent decisions when the only information they have to go on is the pitch being made by an agent paid by the seller or a mortgage broker paid by the lender. (Though "buyer agents" have begun to catch on in some parts of the country, they are still few and far between.) Readers who are routinely taken in by these pitches end up writing to us for help.

The real problem, as you know, is the fundamental conflict of interest built into the relationship between real estate agents and buyers (and between mortgage brokers and borrowers). Agents don’t make money by showing buyers 15 houses, they make money by closing the best deal possible for the seller. Mortgage brokers typically show you a pile of paperwork, tell you where to sign, and move on. They have no long-term relationship with a borrower and little or no interest in that borrower's long-term financial well-being.

Sure, most real estate agents and mortgage brokers do a good job of coming up with quick, if selective, answers to buyer's questions, negotiating a sales price and making the buyer feel comfortable with the process. But when push comes to shove, you are working for the other side of the transaction.

While you may have a lighter touch than some, it’s been my experience -- especially in the seller's market we seem to be coming off now -- that the majority of agents and brokers press buyers very hard, provide  information heavily weighted to promote a purchase, and fairly quickly lose patience when they feel the buyer isn't ready to close a deal on the seller's terms. (After all, that's what a seller's market is all about, isn't it?)

If you really want to change the stereotype, change the way you do business. As long as your income comes from sellers, you can’t truly and fully represent buyers.