Unfortunately, overpaying for a house is a common issue among buyers right now. The market is incredibly hot across the country. The demand for homes is high, and the supply is low. Many people are trying to buy houses only to find themselves in bidding wars.
Bidding wars can make it more likely that you overpay for a house.
When you overpay for a house, you’re going to spend more on everything, including the down payment, the closing costs, and the thousands more you pay in interest over the years.
So how do you know you could potentially be overpaying? No matter what your emotions are telling you, the following are signs and red flags to watch out for in the process.
The Listing Price Is Different From Comps in the Area
If you find a home that you feel is what you’re dreaming of, but the listing price seems out of line with the sales of comparable properties in the area, it’s potentially a red flag.
It could be that the seller priced their home based on the values of neighboring homes instead of what they’re selling for.
Working with an experienced real estate agent who understands the current market can help you a lot here.
You have to look beyond the value of a home. You have to consider the community, the local school district, and many other factors. Again, your realtor should already understand these factors and be able to negotiate on your behalf with these in mind.
Homes in the same neighborhood should be similar in price. There will be variance based on things like size, but generally, the features will be similar enough that you can use comparables as a good guide.
Online Estimates Are Lower
Online valuation tools have their flaws, but they’ve gotten significantly more accurate over the past few years.
If you go online and valuation tools value a home lower than the list price, you could be in the danger zone for overpaying.
Of course, you have to keep everything in context, so maybe the kitchen is recently remodeled, in which case the home might have a bit of a higher value.
The Listing Price is Similar to Homes No Longer on the Market
This red flag can take a little more research to figure out but if you’re looking at a home with comps similar to sellers who have taken theirs off the market, keep this in mind.
An agent will have access to homes that were taken off the market. If the asking price on these unsold homes is similar to what you’re looking at, it could be overpriced.
It’s Been on the Market for a Long Time
If a home has been on the market a long time, you could be at risk of overpaying. A home that’s priced too high doesn’t get showings or interest and then doesn’t get offers. You need to think carefully about why other people might be passing on the home.
Of course, if you’re in the situation where you’re in a bidding war, it can be different. You might be at risk of overpaying simply because you’re caught up in the emotion and the competitive element. If you’re going well beyond your budget simply because you end up in a bidding war, it’s probably time to take a step back and reassess.
No matter the value of a home, if you pay more than what you can comfortably afford, then you’ve ultimately overpaid.