What is Market Value (Cost)
When purchasing a home in Kansas City, it’s important to understand the difference between cost and value in real estate. In other words, the “FOR SALE” price doesn’t determine market value. The best way to illustrate my point is with an example like this:
- Buyer #1 pays $350,000 for a house that was listed for $345,000, $5,000 ABOVE asking price
- Buyer #2 pays $350,000 for a house that was listed for $360,000, $10,000 UNDER asking price
Which buyer got the better deal? It depends. To answer that question, To answer that question, you need to understand the difference between cost and value. What’s the difference?
Simply put: Cost is what you pay. Value is what you get, both objectively and subjectively.
For now, let’s say value is based solely on market data. Later, we’ll look at how value is actually relative to your personal situation. If the market data shows that each of these homes are worth about $350,000, then neither buyer got a better deal. One paid above the asking price, one paid below the asking price, but both got the same deal. On paper, they tied. However, value isn’t based only on market data. Value also depends on your personal situation.
What is Relative Value
A given property can be worth more to you than the next person. Why? Follow me through this example. In this case, imagine both buyers are interested in the same house: 1234 Main St in Overland Park, KS.
Both buyers have the same financial means…just for the sake of an apples-to-apples comparison:
Buyer #1
- 1234 Main St is located:
- 5 minutes from work, church and really great schools
- Plus, it’s right around the corner from his elderly mother, whom he visits frequently.
Buyer #2
- 1234 Main St is located:
- 25 minutes from work and church
- Buyer #2 isn’t concerned with the quality of local schools
In this example, Buyer #1 has plenty of reasons why 1234 Main St could have a higher value to him than to Buyer #2. What if Buyer #1 didn’t get this house, and later found out that he only missed it by $5,000? $5,000 is not a small amount of money in some regards.
However, that works out to about $25-$30 per month difference in mortgage payment. If Buyer #1 settles for a house much further away from his daily routine, he’s likely spending way more than $25-$30/mo just in gas alone. Plus, he loses personal time he could have spent with his mother, but is instead driving further every day. I always encourage buyers to keep this in mind.
Everyone Wants The Best Deal
I completely understand everyone wants the best deal possible. As a real estate agent, that’s also my goal. However, many people feel the need to ask for a certain percentage off of the list price, just to feel like they got a deal. I guess it’s human nature.
Do you remember when the department store Kohl’s used to inflate their prices only to drastically mark them down? The clerk would say something like, “Your total is $100, but you saved $183.16!” Really? No, not really, but you somehow still feel like you got a great deal. The same thing goes for buying a house.
The difference is that a house is a much bigger investment. The job of a good real estate agent is to help you really dig into the details of your situation, so you know what your best options are. That’s how you get the best deal. Always remember that cost (price) is never the only factor in this equation.
If you’d like to dig deeper into your situation, or just have questions…give me a call!
Justin Rollheiser – REALTOR®
Keller Williams Realty | Diamond Partners, Inc.
13671 S Mur-Len St | Olathe, KS 66062
Cell 913-800-7653
Office 913-322-7500
www.JustinRollheiser.com
Comments or Questions?