Determining a Fair Purchase Price in Your Local Housing Market

The General Rule for a Fair Purchase Price
The general rule for a fair purchase price is that most people pay about 94% to 96% of the list price of a house.

The Initial Offer
Be sure to remember that your initial offer to the seller should, in most cases, be lower than what you ultimately hope to pay as a final purchase price. This leaves room for negotiation, which is typically what the seller and their real estate agent expect. Perhaps by starting at a lower offer, you will be able to negotiate a final purchase price that is lower than your maximum purchase price.

Know Your Specific Local Market
Although the general rule is that most people pay about 94% to 96% of the list price of a house, knowing your specific local market is the best way to determine a fair purchase price.

Get Advice from a Realtor who is Knowledgeable about the Local Housing Market
Talk to your realtor who is knowledgeable about the local housing market. Be sure the real estate agent is representing you only as a buyer's agent, so that the real estate agent's advice will most likely be unbiased.

Already Sold Comparable Homes List
Ask the real estate agent to run a list of homes that are comparable to the one you are considering purchasing. Be sure all the homes on this list have already sold, so that you can compare the list price to the actual purchase price.

A Little Math: Purchase Price Divided By List Price Equals Percent of List Price Paid
To determine what percentage the actual purchase price is of the list price, do the following calculation. Divide the actual purchase price of the home by what the list price of the home was. For example, if the actual purchase price of the home is $213,750, but the list price of the home was $225,000, then be dividing $213,750 by $225,000 ($213,750 / $225,000), the result is 0.95, which is 95% of the list price. A purchase price that is 95% of the list price falls within the average percent people typically pay (which, as stated above, is between 94% and 96% of the list price).

As another example, the actual purchase price of a comparable home is $145,200, while the list price of that home was $165,000. Divide $145,200 by $165,000, and the result if 0.88, or 88%. A purchase price that is 88% of the list price is below the average of 94% to 96%. If you calculate the purchase price percentage of list price for several homes and determine that the trend for the purchase price in your local housing market is about 88% of the list price, then by all means, mentally set your maximum purchase price as 88% or so of the list price.