The value of a particular home or real estate should be adjusted either positively or negatively based on how the property compares to other similar properties that have recently sold. Residential property appraisals are based on this concept; the appraiser makes positive and negative dollar adjustments to the sales prices of the similar homes to determine what the subject property is worth; the dollar amount of the adjustments are equal to what they think the adjustments typical buyers should make.
In a normal market, buyers purposely or intuitively adjust what they are willing to pay for a home based on the attributes and negatives. As an example, If the home they want to buy has great views and the home across the street without views sold for $500,000; the buyer may be willing to pay $550,000. Conversely, if the home across the street had the killer views, the buyer may only be willing to pay $450,000. Other factors that should warrant a downward price adjustment could be a property on a busy street, near power lines, having an awkward floor plan, not upgraded, or needing repairs or maintenance.
In the current market, many buyers ignore flaws and therefore pay too much. If these buyers sell in a balanced or buyer’s market, future buyers will demand a price adjustment and today’s over-paying buyers will get less proceeds compared to buyers who adequately adjust the purchase price. If market values fall, these buyers may not be able to sell without taking a substantial loss. If they bought the property with 20% or less down, they might have to write a check at closing.
I advise my clients that if they do not sufficiently reduce the purchase price today, future buyers will probably reduce the purchase price and they will not recover the amount they over paid.