Whether it’s a buyer’s market or a seller’s market, all homebuyers have one thing in common: they don’t want to get ripped off. But how do you know if you’re getting a fair deal on the home you’re prepared to place an offer on? Read on to find out how to evaluate the price of any home so you can make a sound investment decision.

Research Recently Sold, Comparable Properties

A comparable property is one that is similar in size, condition, neighborhood and amenities. One 1,200-square-foot, recently remodeled, one-story home with an attached garage should be listed at roughly the same price as a similar 1,200-square-foot home in the same neighborhood. That said, you can also gain valuable information by looking at how the property you’re interested in compares in price to different properties. Is it considerably less expensive than larger or nicer properties? Is it more expensive than smaller or less attractive properties? Your real estate agent is the best source of accurate, up-to-date information on comparable properties (also known as comps). You can also look at comps that are currently in escrow. meaning that the property has a buyer but the sale is not yet complete.

Check Out Comparable Properties That Are Currently on the Market

In this case, you can actually visit other homes and get a true sense of how their size, condition and amenities compare to the property you’re considering buying. Then you can compare prices and see what seems fair. Reasonable sellers know that they must price their properties similarly to market comparables if they want to be competitive.

Look at Comparables That Were on the Market Recently but Didn’t Sell

If the house you’re considering buying is priced similarly to homes that were taken off the market because they didn’t sell, the property you’re considering may be overpriced. Also, if there are a lot of similar properties on the market, prices should be lower, especially if those properties are vacant. Check out the unsold inventory index for information about current supply and demand in the housing market. This index attempts to measure how long it will take for all the homes currently on the market to be sold given the rate at which homes are currently selling. (For further reading, see Selling Your Home In A Down Market .)

Consider Market Conditions and Appreciation Rates in the Area

Have prices been going up recently or going down? In a seller’s market, properties will probably be somewhat overpriced, and in a buyer’s market, properties are apt to be underpriced. It all depends on where the market currently sits on the real estate boom -and-bust curve. Even in a seller’s market, properties may not be overpriced if the market is on the upswing and not near its peak. Conversely, properties can be overpriced even in a buyer’s market if prices have only recently begun to decline. Of course, it can be difficult to see the peaks and valleys until they’re history. Also consider the impact of mortgage interest rates and the job market on the economy. (Knowing your mortgage choices is important. For more information, read Shopping For A Mortgage .)

Are You Buying a For-Sale-by-Owner Property?

A for-sale-by-owner (FSBO) property should be discounted to reflect the fact that there is no 6% (on average) seller’s agent commission, something that many sellers don’t take into consideration when setting their prices. Another potential problem with FSBOs is that the seller may not have had an agent’s guidance in setting a reasonable price in the first place, or may have been so unhappy with an agent’s suggestion as to decide to go it alone. In any of these situations, the property may be overpriced.

What Is Your Real Estate Agent’s Opinion?

Without even analyzing the data, your real estate agent is likely to have a good gut sense (thanks to experience) of whether the property is priced appropriately or not and what a fair offering price might be.

Does the Price Feel Fair to You ?

If you’re not happy with the property, the price will never seem fair, even if you get a bargain. Even if you pay a little over market value for a home you love, in the end, you won’t really care.

Test the Waters

Even in a seller’s market, you can always offer below list price just to see how the seller reacts. Some sellers list properties for the lowest price they’re willing to take because they don’t want to negotiate, while others list their homes for higher than they expect to earn because they expect to negotiate downward or they want to see if someone will make an offer at the higher price. If the seller accepts your price or counteroffer. you’ll get an indication that the property probably wasn’t worth what it was listed for and you have a good chance at getting a fair deal. On the other hand, some sellers may underprice their properties in the hope of generating lots of interest and sparking a bidding war. Unlike on eBay, however, the seller doesn’t have to simply sell to the highest bidder: sellers can reject any and all offers that don’t meet their expectations. If you have your heart set on the property, be warned that some sellers may be offended by lowball offers and refuse to work with you if you chose to employ such a tactic. Also, when you offer less than the list price, you may increase your risk of being outbid by another buyer. (For strategies that will help you to come out on top in any negotiation, read Getting What You Want .)