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1% Rule in Real Estate: What It Is, How It Works, Examples

If you don't know, the One Percent Rule is a simple formula that helps real estate agents determine the price range for their homes.


The One Percent Rule was initially developed by Zillow and is used by millions of realtors annually to help them estimate the best close price of a home. Interestingly, realtors can use the one percent rule in one of two ways:


What Is the One Percent Rule?

The One Percent Rule is a guideline that helps determine how much money you can afford for your home. It's calculated by dividing your annual income by 12 and multiplying it by 100 (1% = 10%).


The 1% rule does not mean that every property must be purchased at this price point. However, many things go into determining the best result from the one percent rule.



Should You Use The One Percent Rule?

The 1% rule makes sense because it uses statistics from previous sales and assumes that there will be similar characteristics between past sales and this property. The problem with this approach is that it does not consider the personal situation of buyers or sellers. This may result in inaccurate predictions about what will happen with this sale.


How Accurate Is The 1% Rule?

The 1% rule is considered very accurate because it gives you a good estimate of your home's value when it's time to sell. Since most people don't have access to historical sales data, they tend to think that this number is less accurate than it is, which can lead them to make bad decisions).


Questions To Ask Before Calculating the 1% Rule.

Most people struggle with calculating the 1% rule because they don't know what's involved in calculating this number. To sum it up accurately, you need to know the following:

  • How long do you have until your house sells?

  • What is the value of your home?

  • What is the price per square foot for comparable properties going up for sale?

  • What are the costs of selling your property (title insurance, escrow fees)?

  • How much money have you already invested in the project?



What if I have student loans?

This calculation doesn't apply if you have student loans or any other debt in your name. However, it also depends on how much money is left after paying off your monthly obligations. If it's more than $1,000, it may be time to save up for a down payment.


Conclusion

So there you have it. The one percent rule helps calculate how much debt to take on when buying property. Whether you're a realtor trying to save up more time or a buyer trying to have a price estimate, the one percent rule may change the game for you.


Not everyone is good with calculation. Let a professional real estate broker from Gosen Properties help you find the best property at affordable prices. From tools and resources to experts, we have everything that goes into finding your ideal home without any hustle.


Use our tried and tested for use to calculate the best price for your home and get a free evaluation anytime you want.



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