The last Sale Price- how is it related to Current Market Value?

When Buyers are interested in submitting an offer on a property, one of the questions they often ask is- what was the last sale price?  How much did the current owners pay for the home?

Generally, they believe this information is useful in helping them decide what to offer on the home.

In reality, the price that was paid by the current owners is completely unrelated to the current market value of the home.

What is Current Market Value based on?

Current home values are based on current market statistics, comparable properties sold recently, and several other factors that might be affecting the current state of the market.  A home market evaluation is based on a number of factors that are constantly changing, making true value a constantly moving target.

What questions should Buyers be asking to make an informed decision in determining true value and a suitable offer price?

Asking for examples of recent comparable properties sold in that neighbourhood, what the average days on market are at the moment, how many days on market this property has been listed for, is the listing fresh- or has it expired and been re listed, are all valid questions that lead to a true interpretation of value.

A Note About Pricing

Not all homes listed on the market are appropriately priced.  A good Buyer Agent will ensure that you have a good understanding of the correct value of the home prior to submitting your offer.  Obviously there are times that a Buyer may want to sweeten their offer and offer slightly more than current market value- ie when the market is heated and several buyers are offering on the same property.  This is a personal decision but also one that must be based on knowledge and facts.

Appraisals

Most homes will be appraised by a Certified Appraiser if the Buyer is arranging for financing.  If the home does not appraise out, the Buyer may need to add more money to the downpayment in order to cover the shortfall.  They can also try to renegotiate the offer price based on the results of the appraisal, depending on the conditions in the offer and where they are in that process.

Conclusion

In short, there are several relative factors that influence true value, however, what the current owners paid for the home is not one of them.