How Do I Know If I Overpaid For A House?
Michelle Giorlando4-Minute Read
November 10, 2022
No one likes overpaying for anything, whether it’s a meal, a car or groceries. However, there’s a special kind of hurt when you realize that you may have overpaid for your house. While you may know what to look for when buying a house, you could be overpaying without realizing it.
Knowing what it means to overpay for a home, the dangers of it and signs you may have overpaid can help you know how to prevent doing so in the future.
What Does It Mean To Overpay For A House?
There are several common ways home buyers overpay for a house. Some ways are in their control, and some are out of their control. You may have overpaid for your house if you paid more than the asking price of the home or paid more than the appraised value. You may also have overpaid if the house was overpriced to begin with.
There are several common reasons why a home is overpriced:
- Heavy competition in the housing market when there are more buyers than homes for sale.
- Bidding wars on desirable properties, especially in those heavily competitive markets.
- Low interest rates that spur home buyers to act quickly to take advantage of them.
- An urgency to move quickly, such as for a job relocation.
Dangers Of Overpaying For A House
Unsurprisingly, there are disadvantages of overpaying for a house. You’ll likely have higher monthly mortgage payments, which can have a ripple effect on your budget and increase your debt-to-income ratio (DTI). And unless you’re planning on staying in the home for a very long time (and thus real estate prices may go up naturally), you might not profit from your home resale when you want to move.
Signs You Overpaid For Your House
There are several signs to look out for that may show you overpaid for your house.
The Sale Price Was Higher Than Comparable Homes In The Area
You may have overpaid for your house if other comparable houses in the area have sold for less than what you paid. This could mean that the seller priced the home by comparing it to home values rather than what homes were actually selling for at the time. While home values and home sold prices can often be similar, sometimes they’re not for various reasons. Sometimes an appraisal came back low, an inspection prompted renegotiations or there was low interest or even a bidding war. Being aware of this difference can benefit you.
Online Valuation Tools Estimated A Lower Listing Price
Online tools like a home value estimator can help you figure out if you paid more than the property’s estimated value. While these only offer an estimate, this type of tool can give you a good idea of values in the area. Working with a real estate agent who specializes in the area can give you a clearer picture of the local market, too.
The Home Inspection Revealed Issues
It’s a good idea to take a close look at your home inspection. It can reveal issues that reduce the value of the home you paid for. Major repairs add up, and that can contribute to overpaying for a house, even if it doesn’t add to your mortgage payment.
You Exceeded Your Housing Budget
If you got into a bidding war or offered beyond your maximum budget in order to get an offer accepted, you may have overpaid. It can be an easy trap to fall into, especially if the housing market is hot or you’re looking at a particular property.
The Listing Was On The Market For A Long Time
If the home’s listing was stagnating on the market for much longer than other comparable homes, it may be a sign that the house was priced too high for the area.
Ways To Avoid Overpaying For A House
There are several strategies you can use to help avoid overpaying for a house in the future.
Work With A Buyer’s Agent
A buyer’s agent works in your best interests and can ensure that you’re paying an accurate and reasonable price for a house. Your real estate agent or REALTOR® should have a lot of knowledge of the area, be able to identify trends and negotiate a fair house price. Their expertise can ensure that you have a clear idea of what to expect during the real estate transaction, and they can raise any potential red flags you might not see.
Include An Appraisal Contingency
When you make an offer, include an appraisal contingency. This can allow you to walk away from the real estate transaction if the home appraisal doesn’t match the agreed-upon sale price. This is extra helpful if you don’t have the funds to make up the difference and can ensure you don’t pay more than the house is worth.
Get A Home Inspection
Having the home inspected before you buy it can help you see what kinds of issues the home currently has or might have in the near future. This can help you estimate any repair or renovation costs that you might have to pay. Home inspections cost several hundred dollars, but you’ll get a clear picture of the home’s systems and potential costs.
Stay Within Your Budget
It can be hard to stay within your planned housing budget, but it’s important to remember you set that number for a reason. Keep in mind, too, that while you may have been approved for a certain number, that doesn’t mean you can comfortably afford those payments. You understand your monthly expenses better than anyone. Trust the budget you made.
The Bottom Line
Whether you’re a first-time home buyer or a seasoned expert, it’s good to know the signs that you may be overpaying for a home. If you’re ready with a strategy and a home-buying plan, match with a Verified Partner Agent with Rocket HomesSM today!
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