There are lots of potential complications that can cause you to overpay for a house, from being caught up in open-house frenzy to skipping a home inspection to “save” yourself money. But just as there are obstacles to getting the best deal, there are also tried-and-true strategies to get a fair price for a home, like getting a private showing of that home for sale in Philadelphia, PA, instead of (or in addition to) attending the open house.
Here are seven more tips to calculate accurate house value and avoid overpaying for your home.
1. Define “fair price”
Before we get into the nitty-gritty of landing the best deal, it’s fair to point out that sometimes it’s worth paying a bit more if that means you can score a house that perfectly suits your needs. Ask yourself: Is it really worth losing your dream home over a few thousand dollars? It’s a call only you can make, but the answer just might be no.
2. Know the comps
One of the best ways to know the value of a home is to find out what similar homes in the area recently sold for, known as “comps,” or “comparable sales.” Looking at what other homes in the neighborhood are listed for helps too. But you usually get the most accurate picture of local home values by looking at the price someone actually paid. “Ideally, you’ll be able to find at least three comparable properties that have sold recently in the same neighborhood,” says Sam Heskel, CEO of Nadlan Valuation, a New York, NY, appraisal company. A real estate agent should be able to track down this information for you.
3. Include an appraisal contingency
Typically, when you buy a house, you put in an offer, and if the seller accepts it, your lender orders an appraisal. But if the appraisal comes in lower than the price you agreed to pay, you’ll have some decisions to make. And you’ll have more options if you’ve included an appraisal contingency in your contract. “An appraisal contingency typically stipulates that the appraisal must come in at 5% or 10% of the sale price, or sometimes even at or above the sale price,” says Heskel. “If the bank’s appraiser says you’re overpaying by $20,000, why should you pay that price?” You can try to negotiate with the seller to meet you in the middle, but as long as you can afford to come up with the difference — because your lender probably won’t agree to lend more than a home is worth — it’s your call to determine whether you’re overpaying for the property.
4. Be your own investigative journalist
When you’re house-hunting, Google can be your best friend. Why? Because you want to know before you buy whether something’s going on in the neighborhood that could affect property values. Maybe a high-density development is coming, or an increase in homeowners’ association or condo fees is on the horizon. “Buyers should do their own legwork to talk to city hall, the police department, the tax department, schools, neighbors, neighborhood groups, etc.,” says Stacey Alcorn, CEO of LAER Realty Partners in Massachusetts.
5. Work with a buyer’s agent
Yes, you can browse listings on Trulia, but don’t let that keep you from hiring a real estate agent. A good agent will know of properties that are about to hit the market (or might sell before the MLS listing goes live!) plus have expansive knowledge of your market, which can be a huge help if they suggest neighborhoods you haven’t considered that are a great fit for your needs.
“In today’s market with tight inventory, almost half of my deals are completed and sold off-market before they even hit the open market,” says Ryan Pertile, a Minneapolis, MN, agent. “So homebuyers need to find and hire a real estate expert in their desired neighborhood.”
Besides providing you with a comparative market analysis, an in-depth look at house values, a rock star agent “knows the current condition of the market and what is a fair price,” says Phillia Kim Downs, a New York, NY, agent. “Based on the length of time the property has been on the market, whether it’s a buyer’s or seller’s market, and whether there’s a bidding war, an agent should be able to guide you effectively with strategy to make sure you get the most bang for your buck.”
6. Comparison-shop for your mortgage
You probably comparison-shop before buying furniture or even gas for your car. But almost half of consumers don’t shop around for their mortgage, according to the Consumer Financial Protection Bureau. And that’s a mistake. Lenders charge different fees, and they offer various interest rates, sometimes varying by half a percent or more. That could affect your payment to the tune of $60 a month.
7. Don’t get sucked into a bidding war
If you know you’re in a seller’s market (little supply with lots of demand), making an offer that’s below the asking price probably won’t get you the house — and it might put you in a bidding war situation. Typically, it’s better to be preapproved with a mortgage loan and make a strong offer right off the bat. Entering a bidding war can become emotional. “If you really, really want the property, your logical, rational perceptions can get influenced,” says Downs. Know your limit, and walk away if the price goes higher. There are always other homes that come on the market.
How do you make sure not to pay too much for a home? Let us know in the comments!