What Sellers Need to Know About PricingPricing Guide for Buyers

Pre-qualify for a loan.

Before you can establish the price parameters of your home search, you must get pre-qualified for a loan.

Getting pre-qualified is the ‘light’ version of getting a mortgage. Your lender will ask for your pay stub and evidence of other income. You’ll be asked to estimate your monthly debt payments. From the information provided, the lender will estimate how much you can borrow and at what rate.

Getting pre-approved is a step closer to getting a mortgage. Lender may ask you to provide more evidence of your ability to pay and of your credit worthiness. The lender is not committed to giving you the loan, but a pre-approval letter shows sellers that you are serious about your offer to buy.

How does this affect the price? When you make an offer accompanied by a preapproval, a seller may work harder at negotiating because he or she knows you can buy the house and are not bluffing.

Use one of these calculators to estimate your current monthly expenses and how much of a monthly housing payment you can carry.


Closing Cost Estimate Worksheet

Closing Costs Estimate Worksheet
Lender Fees
Points charged by lender:
Document Fees:
Origination Fees:
Wire Transfer:
Credit Report:
Municipal Fees
Transfer Tax:
Additional Fees
Title Search and Insurance:
Estimated Total Closing Costs:

Note: Closing costs vary by state. Check with ForSaleByOwner.com partner Bankrate for the latest on state and local fees.

Where are Home Values Headed?

Home value trends affect current pricing as well as future value. These sources will help you get up to speed on the big picture in the markets you are considering.

Federal Housing Finance Agency Home Value Calculator

This index compares the actual sale price of recently sold houses to the last sale prices of those same houses. However, it does not include improvements that may have increased the value of the properties.

Use the House Price Calculator to see the likely change in value of your house since you bought it.

Use the House Price Index to see the market trends for cities around the country.

S&P Case Shiller Index

This widely followed index tracks home price changes for 20 major markets. If you are buying in one of those markets, the Case Shiller index will be useful. If not, it will be useless.


Drawing from the mountain of data it collects for lenders, FNC uses appraisals for the basis of its index. That means, that unlike the FHFA and Case-Shiller indices, the FNC index counts in home improvements that probably added value. If you are considering buying a fixer-upper in a neighborhood where houses are being improved and where homeowners put a premium on updated houses, this is the index for you.

Automated Valuation Reports

Some real estate companies let the public peek at data originally created for lenders - computer-generated automated valuation reports. These reports use algorithms to estimate the market value and trends of houses based on a mix of government data (like the FHFA calculator, above) and trends detected by lenders. Websites such as Zillow.com, Realtor.com and others estimate recent value trends and current market value of individual houses.

ForSaleByOwner.com offers an AVM that lets you customize the factors - for example, -adding value if the property you are researching is in an especially desirable school district or deducting value if the property has an unsightly view of a 24-hour convenience store.

When you have thought through the market indicators and are comfortable with your analysis, use the spreadsheet in Step Four to estimate the likely net appreciation you might gain from owning these houses.

Stay Ahead of a Shifting Market

Whether prices are rising or falling, it’s important to understand how quickly a house is likely to appreciate, which shapes how quickly you will build equity.

Use this worksheet to estimate the net appreciation of the houses you are considering buying. You will have to use your best judgment to estimate annual appreciation based on the market trends data you gather. This worksheet does not include the cost and consequent rise in property value of remodeling. But it can help you estimate how much to spend on remodeling so you don’t overimprove.

Use the work sheet below, or download an Adobe PDF version.

Net Apprecation Calculator

Purchase Price
Estimated Annual Appreciation*
# of Years You Will Own the House
Carrying Costs**
Transaction Costs***
Estimated Net Appreciation

Annual Carrying Costs

Property Taxes
HQA Fees (if applicable)
2% Purchase Price for
Annual Maintenance
Homeowner’s Insurance
Annual Cost Subtotal
Minus Estimated Mortgage
Tax Deduction
Net Annual Carrying Cost
Find houses you can afford

Find houses you can afford.

Start your search at ForSaleByOwner.com, where smart sellers have already adjusted their asking price because they don’t have to pay full commission.

What is the market value of the houses you are interested in?

The most reliable source of home values is an appraisal conducted by a licensed appraiser who is familiar with your neighborhood. Find a qualified appraiser through the Appraisal Institute.

An economical starting point is the Real-Time Home Value Estimator, a computer-generated valuation report offered by ForSaleByOwner.com.

The Real-Time Home Value Estimator lets you fine-tune the estimated value of the properties you are interested in. Drawn from public records and pending sales, this report is more timely and accurate than an agent’s comparative market analysis, which is primarily a sales tool.

Make an Offer!

Contact the Owner Directly: Unlike homes represented by an agent, there’s no middleman trying to interpret what’s important to you in a long game of telephone among agents, the seller and you. When you see a listing that intrigues you, email or call the owner to request more information and to set up a showing. Use the listing sheet as a starting point for questions. To some degree, the owner is emotionally invested in the house and how it looks -- yes, even though the house is for sale. Ask as many questions as you want and focus on gathering facts. Don't be distracted by decorating and other superficial, easily changed factors. Look beyond them to deduce if the house fits your criteria for price, place, style and function.

For an in-depth guide to buying a home, see “How to Buy a Home Directly From the Owner.”

Accepted offer!

Arrange for the appraisal required by the lender.

A professional appraisal provides a third-party opinion of the value of the house, and hopefully supports your offer, which opens the door for a mortgage.

  • Expect to meet the appraiser at the house and don’t hesitate to ask questions about neighborhood home values and trends.
  • Track local trends by setting up a spreadsheet with recent sales, active competition and your own house. Update this when you come across news and market stories. This will help you see where your price stands in a constantly shifting market.

The Inspection: Are Price Adjustments Required?

Inspectors are commonly viewed with fear by both sellers and buyers because they often find flaws that can undermine a deal or reopen price negotiations. Here is a short guide to getting the most from the inspection - and to keeping your deal on track.

First, hire a qualified inspector. Inspectors must be licensed by the state and should be experienced in examining houses similar to yours. State regulations vary. For the latest in changes in state regulations and rules, check with the American Society of Home Inspectors.

Don’t assume that the inspector is conversant with the building code for your municipality. If an illegal improvement seems sturdy enough, the inspector may not realize that it is not in compliance with municipal codes.

To ensure that the house is in compliance with local codes - so that you do not inherit sloppy or dangerous work that will be expensive to bring into compliance - hire a municipal inspector to come out and examine the house. Have the inspector pull permits for the address and compare those with the list of improvements on the listing sheet. If there are discrepancies, that could mean that the owners did work without permits or inspections. That means that the work might be substandard at best and dangerous at worst.

If you discover illegal improvements, negotiate to either have the seller cover the cost of coming into compliance retroactively, or have the seller handle that themselves. Of course, demand signed permits and certificates of occupancy to ensure that the work was done properly.

Don’t confuse maintenance with improvements. Maintenance includes:

  • Heating and cooling systems
  • Water heater
  • Foundation
  • Roofs
  • Windows
  • Plumbing
  • Electrical system
  • Appliances

Are all in good condition? Can the seller provide evidence of cleaning and other routine care?

Improvements go beyond keeping what is there functional. Improvements can include:

  • Kitchen remodels
  • Bath renovations
  • Additions
  • Conversions, most typically, attics and basements to living space

Ask the seller to provide proof that the improvements were done in compliance with municipal building codes. You want to see evidence in the owner’s records that correspond with the city’s records of permits pulled, work inspected, and certificates of occupancy granted.

A good inspector will peel back corners of carpet to see the condition of the floors underneath. She will poke a jackknife into wood that looks soft to search for termites and carpenter ants. He will examine the joints and crevices of the foundation, outside and in the basement, looking for leads and evidence of improper drainage that can make the house susceptible to floods.

The inspector will also observe and comment on the condition of :

  • surfaces, such as counters and floors
  • fixtures, such as showers and toilets
  • appliances, especially essential kitchen appliances
  • windows and doors, checking that they open and close
  • safety features, such as handrails.

Closing and keys!

Closing involves a mountain of paperwork, including:

  • Credit history: When you apply for a mortgage, it’s necessary for lenders to pull your credit report to know how credit worthy (or risky) you are as a borrower. Be prepared to give your Social Security number and date of birth.
  • Proof of identity: Driver’s license, passport, original Social Security card and other proof that you are who you say you are.
  • Signed purchase agreement: It’s possible to get approved based on your income and asset information, but it makes the process faster and easier if you have the signed purchase agreement.
  • Proof of income: You'll usually be required to show original pay stubs for at least the last 30 days.
  • Copies of your W-2 forms: Required for each applicant. This will help your lender verify employment and income history.
  • Copies of asset information: This includes any accounts where money may come from for closing. You may need to provide statements for your savings, checking and 401(k) accounts; as well as investment records for any mutual funds or stocks. You will need to prove that your down payment is actually your money, not a loan in disguise from family members.
  • Copy of your earnest money deposit: A copy of the check that you gave to the seller helps your lender account for the funds needed at closing.
  • Copy of homeowners insurance: This is to verify that you will have sufficient coverage on the property.
  • Copy of title insurance: This will help your lender verify the legal description of the property, taxes, and the names on the title. Your lender can track this down for you, but usually it is the home buyer’s responsibility.

Once you’ve begun the loan process, your mortgage banker will let you know exactly what documentation you’ll need to get approved. The more information you have ready before you apply, the faster your loan will close.