Appraisers have a fancy phrase called The Principle of Substitution. Applied to real estate, it can be defined as the following from Wikipedia:
“The principle of substitution is the technical basis for employing the cost approach. According to the principal of substitution, a prudent buyer would not pay more than the cost to build a like property. In other words one would not spend $2,000,000 to purchase a new apartment complex if they could build it for 1,500,000.”
When starting to work with new Clients, the first thing we do is go out and look at all of the inventory (New & Resale) to give them an idea of market prices in their price range and location. While doing a great deal of homework on the Internet, and spending hours going through Zillow & Trulia is great, there is no substitution for this initial “on the ground” survey.
In this market in the lower price ranges, most folks will be disappointed in what they find in active inventory. This is because there are more buyer’s than good homes right now, and they are selling very quickly. However, it still gives those Clients a sense of the neighborhoods and areas and allows me to set them up for instant e-mail notification when a new home comes on the market in their price range.
Now if you are looking in the higher priced markets, say $500,000 or above the opposite is true since there are many more homes for sale than buyers. The importance of shopping around and understanding the opportunities is critical, since this price range is subject to further price adjustments. You need to invest in the highest quality of those homes available.
Buying a home is a huge investment, and you should spend the time and effort to fully educate yourself before making a purchase. Find a good REALTOR® to be your advocate and take your time in the selection of the best home for you. For those buyers in the lower price range, expect some frustration dealing with low inventory, short sales, and Bank Owned Sales. For those in higher price ranges by quality and location.
Read more about the current Market at The Lighter Side of The Dark Side.
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