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5 Signs You’re Overpaying For A House

Kevin Payne4-Minute Read
January 29, 2021

Buying a home is one of the most significant financial decisions you’ll ever make. The process seems daunting, especially if it’s your first home. There’s hope that your dreams of finding the perfect home becomes real life.

The reality, though, is that getting caught up in finding the perfect place can lead to overpaying for a house. This is when homebuyers are preparing to pay a higher price than the appraised value. There are several warning signs that foreshadow this situation, as well as strategies for how to avoid overpaying on a house.

1. The Listing Price Differs From Comparable Homes In The Area

You stumbled across the ideal home within your search area. It has all of the amenities you desire and more. For some reason, though, the listing price doesn’t line up with recent home sales of comparable properties in the area.

If this happens to you, there’s a good chance that the seller priced their home based on neighboring home values rather than going by what homes are selling for in the area. By paying close attention to the current housing market, you’ll be able to spot some red flags that you’re about to pay too much for a home.

When looking for a house, don’t just look at the home’s value. Also consider the community forecast. Research the local school district, local commerce, and other factors to make sure you’re moving into a stable community that will increase your home’s value in the future. Your real estate agent should have a handle on recent sale prices and can help you negotiate a fair price.

2. Online Valuation Tools Estimate A Lower Listing Price

Technology has been a godsend for homebuyers, especially when it comes to determining accurate property values. Several reliable online valuation tools allow you to see how much a property is worth.

Properties with a listing price significantly higher than the home valuations you get from online tools are a red flag. This doesn’t necessarily mean that you’re overpaying for the home, though. Your best bet is to consult a real estate agent familiar with the area that may catch something outside of an online valuation tool’s algorithm.

3. The Listing Has Been On The Market For A Long Time

It’s rare these days to find a home that sits on the market for months, but it happens. This is referred to as a stale listing. Whether a home is considered a stale listing depends on factors like location, price, and property type.

Find out how long the house has been on the market and compare it to the average market time for homes in the area. If your potential home has been on the market significantly longer than comparable homes in the neighborhood, there’s a good chance it’s overpriced.

4. The Listing is Priced Similarly to Homes Taken Off The Market

Another red flag is if the house you’re looking at is priced like comparable homes that sellers have taken off the market because they didn’t sell. Real estate agents have access to homes that were pulled from the market. Check the pricing on comparable unsold homes. If they match the asking price of the home you’re looking at, it’s likely overpriced.

5. Home Inspection Issues

After a home bid is accepted, the property is subject to a home inspection. Be sure to use an experienced home inspector you trust to find any issues with the property. A quality home inspection will help you understand any potential problems that would affect the home’s actual value.

Keep an eye out for any hidden maintenance issues that weren’t mentioned earlier in the home buying process by the seller or their real estate agent. Of course, maintenance issues can always be fixed, but there’s a cost that someone has to pay. If that ends up being you, you may be in danger of overpaying to get the house in order. 

How To Avoid Overpaying For A House

Even if you’re a new home buyer, you don’t have to fall victim to an overinflated listing price. If you’re on the market for a new home, employ the following strategies to avoid overpaying for a house.

Work With A Buyer’s Agent

Finding a good buyer’s agent can make the difference between overpaying for a home and finding the best value for your money. A buyer’s agent is a real estate agent that works specifically with home buyers. Buyer’s agents represent the buyer and their best interests.

Another reason to work with a buyer’s agent is their understanding of the local housing market. They have insider knowledge of properties currently on the market, houses about to hit the market, and those that have been sitting for a while. A buyer’s agent can gauge a fair house price and a potential overpayment. Their insight into the local market will help come negotiation time with a seller.

Include An Appraisal Contingency

Another way to protect yourself from overpaying for a house is to include an appraisal contingency in your contract. An appraisal contingency is a clause included in your purchase offer that states if the home isn’t appraised for the agreed-upon price, you can walk away from the deal with your deposit.

In most cases, the appraisal value matches up with the home sale, but it’s not always the case. If you decide to back out of the deal without an appraisal contingency, you’ll likely lose your earnest money deposit you put down when you made the offer.

Having an appraisal contingency is a great negotiation tool. If the appraisal shows a lower value, you can use it to negotiate a better deal or walk away. Keep in mind, though, that this only gives you more options if the house is overpriced. Also, a seller doesn’t have to agree to lower the price.

The Bottom Line

It’s easy to get caught up in the emotions of owning a new home. That doesn’t mean that you have to overpay for a house to get what you want. The best thing you can do is find a buyer’s agent with a good reputation, understands your needs, and has a good feel for the local market. You can also consult our homebuyer’s guide for more tips and information.

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    Kevin Payne

    Kevin Payne is a personal finance and travel writer who writes about family finances, banking, credit cards, and loans. Kevin lives in Cleveland, Ohio with his wife and four kids.