Does Previous Price Matter When Buying a Home?

What they paid for it really has no bearing on what it's worth now. Anyone who bought a home in 2006 and tried to sell it in 2009 knows that (I personally lost over $250K on such a home... ugh!). The market goes up, the market goes down. It is what it is. The only thing that matters right now is the condition of the home and comp sales in the neighborhood.

Looking at what someone paid us irrelevant.
That's kind of like thinking someone with a brilliant idea, who starts making a widget that everyone wants and buys, doesn't deserve to build that company into a multi-million dollar business because the widget is made from .50 worth of plastic.

What the house sold for previously shouldn't factor into it. The question is whether the house is priced correctly for today's market, whether it's listed for a similar price to comparable homes. If you feel that this home is not worth the asking price, and is not a good investment, then keep looking.

What it sold for 3 years ago is irrelevant. You need to get current comps and do the math using TODAY'S conditions. If it turns out it's worth what they're asking, then it's worth what they're asking, regardless of how much they got it for. If it's overpriced, offer them what you think it IS worth. If they truly want to sell, they have to accept market value for their house. And market value is what someone is willing to pay for it.

Personally, I DO look at price history of a home. But just for my own curiosity...I don't use it as a basis for what I think I should pay. I look to current comps for that.

You can look all you want but it has nothing to do with the value of the house at this moment in time.

Did you not live through the recent real estate boom and bust? In our area you could have bought a house in 2002, done absolutely nothing to it (in fact you could have virtually trashed it) and sold in 2006 for twice as much or more.

This stuff is really pretty simple. If you want the house you offer close to or exactly what you're willing to pay for it. Others will do the same, if no one "wants" it and the owners are serious about selling, the price will come down. No need to over analyze everything and compare to what's already ancient history as far as real estate is concerned.

Is there a chance you like the hunt for a house more than you actually want to purchase one?

No, and I think you are grossly misinterpreting what you are looking at. Built in 2010 sold in 2011 means it was built and the person couldn't afford to keep it or it was a spec home, or for some reason it was built, meant to cost so much but then they had to take a hit to get it sold. 2011 was when things were hitting rock bottom. So if they bought a close out or something they probably got a steep discount but the home is actually worth quite a bit more. 2011 was a buyers market.

Prices have gone up since then, 100,000, not really, but if they got it at a 75,000 discount then it is reasonable. Or they maybe have it 25,000 too high. Don't know.

You cannot expect someone to pass their good luck, their discount onto you, that just isn't how it works.

What I am saying is smart home buyers know the market, they know what the home is worth now and that is not based on numbers three years ago. If you are employing this type of faulty logic it is no wonder it is taking you so long to find a home. Ask your realtor what homes are selling for in that area, it is that number you base your judgement on.

Another way of looking at your logic, if they had paid 150,000 more three years ago and were asking the same price would you just blindly think you were getting a bargain?

I live in one of the most expensive parts of the country, San Francisco/Silicon Valley. Homes sell for whatever the market dictates. Sure, it makes NO sense to buy a home that costs $100K more than it did a year ago but that's just the cost of living here. And buying a home is a nightmare because there are so few homes on the market and multiple offers are the norm. We made offers on several properties before finally getting this one. It is actually NOT my style at all, but it's in a great area and has good bones so we have remodeled and made the space work for us.
So if you live in a similar area you are simply not going to get EXACTLY what you want, unless you get very, very lucky.

I look, but it wouldn't dictate my decision about the house.

In your example (your own experience that you talked about above) you didn't mention the history prior to 2011. You don't seem that interested in it. Why not? Was the house built in 2011? I'm guessing not... it seems pretty odd that the outside porches and decks would be "rotting out" after only 3 years. You also said, "they did nothing to it", which I interpret to mean, they bought a used house and didn't make any improvements to it. Not that they bought it brand new, and didn't do anything after purchase. (Most people who build/buy a brand new house don't do a whole heck of a lot improvement-wise in the first 3 years of ownership).

So. They want 100k more than they paid 3 years later. When they bought it, had it dropped in value 150k recently and they got a steal? Maybe they think it is now worth close to what it was worth before the housing market went into steep decline several years ago. I'd dig further back into this house's history (and or the neighboring home values) before you are so quick to judge.
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Yep, Kristin C.

You have to base it on current market value based on comps. If it's worth 100k more, either based on market value or on your desires (which it's clearly not worth it to you), then it's worth it. Someone may want it enough. What they payed 3 years ago is irrelevant.

Have you considered asking these questions on a real estate forum, like http://www.zillow.com/advice/ ?

It won't matter when we eventually sell our first house.
But then we've owned it for 24 years.
We paid $159,500 back in 1990 and had a 30 yr mortgage which we paid off in 12 years.
In 2006 we could have sold it for $500,000 but then the bubble crashed.
We'd be lucky to get $350,000 for it now and we need it to go for more than that to wipe out our current mortgage.
So we'll wait on it a few more years before selling.
In the mean time the rent we collect from it helps out.

Your Realtor should be able to tell you how much the house is worth. That's part of their job. And his he/she doesn't, the bank you get the loan from will. They will not give you more money then the house is worth in case they ever have to foreclose. They would never get their money back.

I look at everything when interested in purchasing anything. I too believe that buying a home is a HUGE investment and don't take it lightly cuz this is serious to us. With that being said, a person can list a $100,000 house for a million dollars BUT if it doesn't appraise out that million dollars doesn't matter.

nope. but my husband is in the construction business and has a keen eye for rotten bits, and repairs, and red flags.
the bottom line for us is what we're willing to pay and what we're willing to put into it. you'll make yourself crazy trying to suss out whether or not they're being *fair.*
the 'massive premium' is whether the market will bear what they're asking, not whether or not you think they deserve it.
khairete
S.

I didn't look at the price the house sold for last. In the neighbourhood in which I live most people stay in their homes for 40 years or more so it really wouldn't matter how much the house sold for in 1970! What the other, similar homes in the neighbourhood are currently selling for is a better gauge.

What do you mean "they didn't even closet systems in the house."? Is a "closet system" a standard thing?

You offer what you feel the house is worth to you. If you REALLY want it you will pay for it. Otherwise you can make a lowball offer and hope you get lucky.

I do look at previous sale and listing numbers from years past, but ultimately the home is worth what a willing buyer will pay a willing seller (in an arms-length transaction and assuming you can get financing). That figure can change rapidly in certain markets.

We've been in a mini-bubble (again) in our area and I've seen homes sell for $100-200K more than they sold for just 2-3 years ago.

That being said, we did not sell our house though we had it on the market this past year. The market just hasn't caught our "number" yet, and we weren't going to sell at a discount and buy at a premium. We've decided to stay put for now.

ETA: When you look at what we bought our house for 12 years ago it looks like we're trying to make alot of $$$. But the value is determined by the market, and we've put $$ into our house. Not going to give it away.

Price history isn't going to be very useful because the price of the house will be set based on the current market. A house that last sold in 2011 is going to be priced very differently today. The better way to do it is to look at recent sales of similar homes in the area. You need to focus on price per square foot, not overall price. The price per foot can vary widely from one area to another and, though it will reflect how nice the house is on the inside, it's a much better gauge than seeing what it's sold for in the past.

In my area, houses that haven't been fixed up too much (most were built in the late 1970's) are selling for around $350 per square foot. A house with a remodeled kitchen and bathrooms, new windows, etc, is more like $400-425/foot. So, on a 2000 square foot house, the price would be about $700-800,000. Prices here have risen fairly dramatically in the last six months.

Anyway, go on sites like redfin and see what recent sales look like. Also compare the asking price to that of similar houses currently on the market. If the price per foot is in line with other houses that are both similar in size and similar in quality (upgrades, remodeling, etc), then it is a fair price.

yes, we always look at price history. in your case, that much of an increase without any improvements is a red flag for me. i would probably make an offer i am comfortable with knowing i have to walk away if they don't accept. last two homes we have sold, we have lost about 300k combined. it's just how it is. market changes constantly.

A home is only worth what someone is willing to pay for it. My husband and I considered moving a few years ago. We put our house on the market knowing it was overpriced but we thought maybe we would get lucky and someone would buy it for what we were asking. It wasn't worth it to us to sell it for much less than our asking price. We ended up not moving.

Re: the house you are looking at...it sounds like the seller is not too motivated to sell or maybe they are on drugs;).

Homes are sold by the market price. Can you access the prices of homes that recently sold in that neighborhood. Average the price of them per square foot. Then multiply the price per square foot by the actual square footage of the home you are looking at.

Sure there are other factors, but that should give you an idea as to whether the seller is way off on their pricing strategies.

If the price is way over, perhaps they will negotiate down. Otherwise, the intention is to make money when you sell the house.

Added**It's standard for you to make them a realistic offer on the house if you love it, no matter what they're trying to get. Let them know what you WOULD pay for it and you never know- they may give it to you**

Right now there is a GORGEOUS house across the street that I want to buy. Unfortunately I can't right now. The owners are asking much more than they paid. They won't get it though in this particular town. The value hasn't gone up. Not in my house, and not in their house either.

They can ASK whatever they want, but they won't get it unless someone is desperate to outbid lots of other offers. Which isn't the case. It's just sitting there. I don't even know if it would sell at it's true value. This town is hard to sell houses in. It's victorian with majestic tall windows, arched stairway, fireplaces etc. Everyone around here wants new houses though, not old ones. I love it and want it, but I'm stuck in my character-filled big old house of low value too. We put lots of work into our ouse too. Doesn't matter. The price remains the same. No one will pay more in this town. The up side is that the price was never inflated so it can never fall either.

It's standard to check the worth on zillow and stuff and it depends on WHERE the house is. If values aren't rising, they won't get that price. If they are, they will. A simple bank appraisal will tell anyone who wants to know what it should cost.

Totally depends on the market.

Our Home is valued at so much right now, it is a joke.

It is falling down around us, But the land that is a gold mine. Location and what the homes are selling for around us.

Yes, it's all about the comps. How long has it been on the market? If it just went on, keep an eye on it, it'll come down. Our home was overpriced based on a recommendation from our then realtor. Bad advice. Maybe they were advised that way. Keep watching for it to go down...

The past can tell you a lot. But only the recent past. It doesn't matter what someone paid for it more than 3 years ago. The market has changed. If the house has been in their hands for decades? it's not relevant. What is relevant are the comps in the neighborhood.

When Tyler and I bought our home 2 years ago, the house was in the family for about 10 years. They had made some improvements, not much, but the comps in the neighborhood dictated our offer and sell price.

Offer what you are willing to pay for the house. Get an inspection done and find out what it would cost to repair items you have noticed. Then present your offer. The market dictates the price, supply and demand. If the market is as you say, it might very well go for what they are asking since you've said there's not much on the market. It might not happen for you, but it might for someone else.

Keep in mind, once an appraisal is done, and someone is financing the house? The lender will ONLY give enough funds for market value, anything above market value will have to be covered by the buyers.

Yes. I look at price history as well as comps in the area as well.

One of the houses I looked at last year, which I've been admiring all the time I've lived here - 17 years - has been vacant this whole time. The company bought it from the deceased man's daughter for $500K, they probably put $100K into it and wanted to sell it for $900K - sorry - but there was still too much work that needed to be done - new windows, new roof, new A/C and heating...fence....and so much more....the kitchen was perfect...but otherwise? that's all they spent money on. It ended up selling for $725K and the people who bought it? NEVER knew it was empty for 20 years...they had to replace ALL of the plumbing, re-did all of the electrical and all the stuff I said - with the exception of a fence....they've put about $200K into it. They are staying...but yeah...I check the price history...helpful to know if it's a flip or whatever background you can get on the house...

Wait - I'm sorry - you contradict yourself. You state it was built in 2010 in your original post and in your SWH you say 2011. Which is it? That's a short period of time for the wood to be rotting and warped.

If you are interested in the home - put together an offer - and show what needs to be done and see what they are willing to do.

I do look at price history. For that big of a difference, I would expect some after-delivery upgrades. Did they perhaps put a bunch of money into finishing the basement after it was built?

How does it compare to other homes on the market? All homes still have to be priced in relation to comparable properties, so does it fit in the same range?

And why are 4 year old decks and porches already rotting? Does it have water discharge problems?

If you find a house that you like in an area that you want to live in and the selling price is in line with the current market value of other homes being sold in that area plus the house appraises for that amount, then what they paid is totally irrelevant. Happens all of the time as the market changes constantly. We paid $105,000 for our very first home in South Florida that was built in 1978. It was a 3 bedroom, 2 bath, with an attached 2 car garage and a fenced yard. We lived in the house for 13 years and other than paint, carpet & some minor inexpensive upgrades, we really didn't do much. When the market went crazy & housing costs were increasing at an unbelieveable rate, we sold our home for $210,000. I didn't even think it was worth it but that was what the houses were going for and it sold in less than 1 month. Happend again in our next home. It was a new home & we paid $170,000 and sold it 2 1/2 years later for $255,000. One year later the housing market crashed. The houses on our old street are now selling for $100,000. It was the craziest thing we had ever seen. What the previous owners paid never mattered.

I have some friends who bought a huge monstrosity of a house.

The owner actually came down $300,000 to get it sold. They got a super steal on this house. But the owner needed out from under it.

The people putting this house you are asking about on the market have to know they're not going to get this higher price. The want to get more than it's worth, who wouldn't?, but they want it to be higher so when they do come down they have over $100K to play with.

There have to be other houses out there that are much less expensive.

I'd simply pass this one by. You deserve to have a house that is not overpriced. You'll NEVER get out from under it. What if your husband loses his job, what if one of you die? There are so many things that can happen. Don't over pay for a house that is obviously being sold by people that want to take advantage of people they think are stupid enough to buy it.

I owned a couple of houses and lost ridiculous amounts of money on the last one. Now we rent a 700K beach house for about 2/3 of what a mortgage payment would cost. There are things I can't change about it, and that bothers me, but I love the idea of being to move easily (without losing 100K) if my husband's career requires it. I spent a 2 to 3K on cosmetic upgrades and it really suits us well. I hope someday I can get my head around buying again, but I am still not there.

Absolutely. You also look at the houses that are on the market around that house and see if its in range. If its way over the others and hasnt been improved upon then its overpriced. If it hasnt been improved and the market is the same or worse, whats their reasoning behind asking so much more? It doesnt make sense financially unless they got a really good deal on it when they bought it and are now up to par with the neighborhood asking prices.

ETA: About your additional info in your SWH about the contingency: I didn't make myself clear - sorry about that. What I meant was that you might not want to take a contingency from the buyers of your house. In other words, if they want a contingency to sell their house before they close on buying yours. In the tight housing market for the past few years, contingency sales are not very popular. You might end up owning 2 houses for a year or more. OR they end up not selling their house and you lose other potential buyers waiting on them...

Original:
I haven't read the other posts yet, but I absolutely agree with you to take your time looking. Besides, don't you have to sell your own house first? A lot of people won't accept a contingency offer... I wouldn't it it were me.

As far as this house you're looking at is concerned, what is important is the comparables. You should have your own realtor who will give you the comparables and THAT'S where you start from, and negotiate from there. The longer that house sits on the market, the better position you are in to negotiate better terms, based on the comparables AND the appraisal.

It also takes patience, J.. If indeed this house is overpriced by $100,000, no one is going to bite. Including you. You would be looney-tunes to even entertain paying such a premium for a house, regardless of how the space works for you. You'd be better off building your own house custom instead.

I also want to mention that your bank will NOT lend money if the house is overpriced. The bank will look at the house appraisal. No amount of "wishing" by the current homeowners will make this house worth what they want to sell it for if it doesn't match the appraisal and the comparables.

As to your question, yes, we've looked at the price history of the homes we have bought. A house I have bought had been on the market for over 2 years because the homeowners acted like the ones you're talking about. This happened when the market fell apart, so it was even worse then. It's one thing to get caught up in a rising market and overpay back when banks lent money like the market would never drop. But NOW? That's financial suicide.

Keep looking. Get your house on the market if it isn't already. By the time you get close to closing on your house, maybe these people will have wised up and lower their expectations according to what the actual market will bear...

No. The market and value for money is what I look at. Market changes mean that previous prices may be totally irrelevant.

Yes I do. However, just because a homeowner can ask for a million dollars doesn't mean they will get a million dollars if the comps aren't there to support their asking price. Also, if a home doesn't appraise for the amount, they won't be able to sell because no one would be able to purchase it at that amount.

In addition, the length of time that the home has been on the market can also have an affect. If the home has only been on the market a couple of weeks, chances are they won't come down on the price. However, if it has been on the market for several months, then chances are they will.

If you are interested in the home and you and your realtor can justify the lower offer than go for it.

My husband and I looked at a new build about 18 months ago. It was at 275-280. We decided we weren't ready. We went back in January. That home is about 360-380! Yes, housing in North Houston has gone up a tremendous about in the last 18 months. I have been shocked!

I second everything Kristin C. said.

I didn't look at the price history. I had the house appraised and made an offer based on what it was worth at the time I bought it.

I've been home searching and I always look at what they paid for it.