Best Zen Advice: Live in the Now

Dear Pat,
We recently saw an open house in Longfellow that suits us perfectly. The problem is is the price. The seller is asking $205,000 but we checked the old sales records and discovered that he only paid $105,000 in 1999. That seems like too much profit, when we consider what has happened to prices in the past few years. We also checked the tax statement, and the city has the house valued at only $185,000. We don't want to offend the seller, because we love the house, but we don't want to get stuck, either. Is there an appraisal formula to account the rise and fall of prices in the last 10 years?
---Don't want to be Hornswoggled

Dear Horns,

I've heard variations of this question for over 30 years, through all different kinds of markets and circumstances. Now, if you were present in my inner thoughts, you'd observe that I mindfully fold my hands, arrange my spine in the position of the Lotus, and quietly answer, "Live in the Now, my children." However, in the hurly-burly of the outer world my advice might sound a little more like, "Why the [bleep] do you care what the seller paid for it, the important thing is what it's worth NOW!!"

If this sounds harsh, Horns, please bear with me. You'll soon see how the pros determine value. First, let's take a quick look at reasons why your need to know the past is a waste of time. A few: the seller may have gotten a great bargain when he bought, or he may have made big improvements you're not aware of, or he may have located on a block that has since benefited from commercial or civic development.

Tax values won't help you, either. Anyone who owns a house rightly believes that the city is nearly always wrong. City estimates are either too high or too low because they rely upon area sales statistics to determine value changes, much as you are attempting to do. The city has little choice in this. There simply isn't the budget available to do an actual appraisal of every home.

But Realtors and appraisers can accurately determine value by using the "market approach." They compare the subject property with comparable recently sold properties in a given area. Using information available from the Multiple Listing Service they add to or subtract from the subject property a given value for differences in features and amenities. If, for instance, the subject property has no fireplace, but in all other respects is equal to a comparable sold property, then the appraiser would subtract, say, $4000 from the estimate of the subject property's value. In addition to the market analysis, a conscientious Realtor may also tour other properties currently on the market to see if her proposed listing price is competitive.

So do what the pros do, Horns. Work with a Realtor who can do a competitive market analysis of the house you're interested in. Get a thorough tour of similar homes currently on the market in the area. You can become pricing experts in two days. Just remember, it doesn't matter what the seller paid, or if he's a greedy dog for trying to make a bundle. The market will tell you what it knows, and what the market knows is NOW. Good luck!