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5 Steps to Buying an Overpriced Home

Are you buying in an overpriced real estate market and worried that you’ll end up with an overpriced home? The good news is that overpriced homes generally end up selling for less than they’re worth. The key is having a strategy for your real estate purchase.           
 
 1   Determine Market Value 

Begin by verifying that the house is actually overpriced. Home values fluctuate both seasonally and in response to larger market trends like availability of financing, employment rates, and supply versus demand. Values are specific to individual locales – a good deal in Tallahassee might be a bad deal in Peoria.  Consult a real estate professional to determine the average list-to-sales price ratio for your market. Also ask about the average days on market (DOM) for homes in your area.  If a property has been on the market longer than average without substantial price reductions, there’s a good chance it’s overpriced. While you might get a general idea of your market by browsing the Internet or the classifieds, remember that there’s a difference between price – what a seller wants for his home – and value – what someone will actually pay. Use comparable sales within the last six months to make determinations of value. Ask your realtor to prepare a comparative market analysis, which compares the subject property to recent sales, with adjustments for variables like square footage and age. Contrary to popular opinion, tax assessments are not necessarily good indicators of value.  They tend to lag behind the market and may be based on incomplete data.    If you’re not working with a buyer’s representative, you will have to rely on a combination of research and instinct to make a determination of value. Keep in mind that Internet sites purporting to calculate values on particular properties may use flawed data.

  2   Assess the Possible Reasons for Overpricing 

Smart, knowledgeable sellers price to sell. Try to determine why the seller hasn’t priced as he should. Perhaps the seller is uninformed. Sellers like to confuse asking prices with values because they’re typically higher. This happens often with sales by owner. Some sellers price high because they may have strong emotional attachments to their homes and can be unrealistic about flaws. In these situations, you’ll need to counter reality with facts while being mindful of the seller’s feelings. Some are not genuinely motivated to sell. They’re floating their property at an inflated price to see if someone will bite. You might not want to waste your time with an offer on these properties.

  3   Make a Strategic Offer 

Structure your offer on an overpriced home by arming yourself with facts and providing supporting documentation. If your realtor has prepared a market analysis showing that comparable properties have sold for less, consider including a copy with your offer. When deciding what price to offer, consider days on market and the market history of the property, including any price reductions.   Use good psychology in structuring your offer. If you’ve determined the seller is overly attached to the home, do not insult him or her with a lowball offer, and consider including a letter saying what you like about the home and how you’ll care for it.

  4   Negotiating for an Overpriced Home 

The seller typically has a bottom line. You should have a price ceiling. Remember there’s more to an offer than price. As you negotiate, consider additional terms and concessions.  Maybe you could delay or accelerate closing to accommodate the seller; perhaps the seller would rather not have to clean out that old shed; maybe he could toss in some personal property to sweeten the deal for you. Keep in mind that most people have a limited attention span for haggling. If you insist on negotiating over a few hundred dollars, you may irritate the seller and kill the deal.  
          
  5   Know When to Fold

Don’t be afraid to tell the seller when you’ve reached your bargaining limit and you’re making your final offer. Be prepared to walk away. You can always come back to the table if you change your mind. But before you walk, assess how much you like the house. If it’s really what you want and you plan to own it for several years, paying a few thousand dollars more than what you think it is worth may not be so bad, especially when the price is leveraged with a mortgage.
 

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