Overpaying for a home is unfortunately a common problem, especially for first-time buyers and people in hot real estate markets, like we are in Maine. When you’ve never gone through the home-buying process before, it’s difficult to know how the process works and if you’re overpaying, getting a deal, or paying fair value for the home.
If the market is competitive, like it is in Maine at the moment, overpaying becomes an even bigger risk. Depending on the home, multiple buyers could be making offers at the same time. This typically drives the price up, and finding a ‘deal’ is unlikely unless the home has sat on the market awhile, what realtors often refer to as a stale listing.
You can reduce your risk of overpaying by taking your time, doing your research, and working with a realtor that is looking out for your best interest to guide you. There are several common situations that lead to overpaying, and being aware of them can help you avoid them.
Here are six common pitfalls to be aware of when shopping for a home:
1. Short on Time
Ideally, you should have plenty of time to find and close on your perfect home. Not all buyers have months to search for the best option, though. Sometimes, unexpected circumstances require you to move within weeks.
A divorce, sudden job change, family illness, or other emergency may force you to buy a home on short notice.
Your options are more limited when you don’t have much time, but this doesn’t mean you have to overpay on a home. Although you’re stressed about the short-notice move, try to avoid rushing into decisions without thoroughly considering the details.
Make sure you work with a realtor who’s familiar with the area you’re moving to. Your real estate agent will help you avoid mistakes like overpaying, and they can identify the neighborhoods that meet your needs.
2. Not Knowing What You’re Looking For
Before you start your search, you should have lists of what you need in a home and what you want in a home. It’s important to distinguish between needs and wants when you’re shopping for a house.
Mistaking a want for a need may lead to you buying a house outside of your price range for a feature that’s not actually necessary. For many buyers, it’s very easy to get emotionally attached to a dream house, but this can cloud your judgment and lead to overpaying.
You should identify your price range before you start shopping, too. To avoid overpaying, the upper boundary of your budget should be a hard line. Don’t view houses that are outside of this range. It’s easy to fall in love with houses over your budget and then feel disappointed on the homes you can afford. A better option is to start your search at homes under your budget.
It may be tempting to stretch your budget, but sticking to your price limit is a great exercise in restraint. This will help you stay grounded and learn how to decline and walk away if someone’s asking for more than you want to pay.
3. Overwhelmed During the Open House
Open houses aren’t common during COVID, but instead sellers are packing showings back to back over a short period of time. This can be anxiety-inducing for buyers. When you’re surrounded by other people all interested in the same home, you may feel tempted to make an offer without fully thinking it through in order to beat the competition.
Try to go into showings with a level head. Remember that sellers want to create that sense of urgency among the potential buyers to motivate them to put in offers. There may not actually be as much competition as there appears to be. Even if there is, it’s not a reason to overpay.
You can also request a showing outside of the showing window to feel less pressure. A seller may or may not agree to this.
4. Caught in a Bidding War
If you’re shopping in a competitive market, like the current Maine market, you might find yourself getting into a bidding war. This will quickly drive up your offer until you’re overpaying on the home.
It can be tough to walk away from a bidding war, especially if you already feel emotionally invested in the home. When you feel like the house is so close to being yours, you may not see the harm in increasing your offer. However, paying far more than you originally intended, may leave your budget stretched and open the possibility that the home may not be worth what you’re paying.
Try not to get attached to a home until your offer has been approved. You should be prepared to walk away if a bidding war starts to escalate and you’re not comfortable paying more. It can be disappointing to lose out on the opportunity, but there are always other options.
5. Unfamiliar with the Neighborhood
The exact same house could have drastically different values in different areas. When making an offer, you have to consider the neighborhood and town, in addition to the home itself. Overpaying for a home in a less-than-ideal neighborhood is a common mistake for new home buyers. Your realtor should advise you about potential future resale value if the market turns to a buyer’s market in the next few years.
Before putting in an offer, work with your realtor to research the values of similar homes in the neighborhood. Look into location-specific information like tax rates, homeowner association fees, school systems, crime rates, and upcoming construction projects. All of these factors will influence the value of the house, and overlooking even a small issue can lead to overpaying.
6. Overlooking how long a home has been on the market.
If the house you’re looking at has been on the market for a long time, there’s probably a good explanation. One of the most common reasons a home stays on the market is that it’s overpriced, or has some sort of major repair issue needed. The house may have other issues that turn buyers away, too.
You should always research how long a home has been listed before you put in an offer. If it’s been on the market for months and it is a seller’s market like it is now, it’s critical that you figure out why. The seller might be asking for far more than the home is worth, and they may be unwilling to budge.
Overlooking this fact may cause you to overpay or waste your time trying to negotiate with someone who’s inflexible.
Because the market is constantly changing, it can be difficult to determine what an appropriate offer is for a home. Purchasing a house is also an emotional experience, so buyers sometimes act impulsively. To avoid overpaying, patience is key.
Don’t rush into a decision because you feel anxious or excited, and don’t make an offer before doing your research. If you’re careful and thoughtful with your decision, you should get through the home-buying experience without regrets.