How To Know If A House Is Overpriced: 5 Questions To Ask
A home is the most expensive – and potentially emotional – purchase you’ll likely ever make. When you first view your dream home, you might envision holiday gatherings in the living room, potluck feasts in the dining room or notches on the kitchen door jamb marking your growing children’s height each year.
However, it’s important to remember that buying a home is also an investment. You’ll want to build equity in your new home, but that can be difficult if you purchase an overpriced house.
Let’s explore some strategies for determining if a home is overpriced. Then, we’ll look at some steps you can take to ensure you avoid overpaying for a house.
How Do You Know If A House Is Overpriced?
While it can be difficult to think objectively about your potential dream home, having a concrete strategy can help you arrive at a rational decision before you make an offer on a home.
Below are five questions you should ask – and find answers for – to determine whether you’re viewing an overpriced house.
1. Is The House Priced Significantly Higher Than Comps In The Area?
Comps – or comparable sales in the same local real estate market – are recently sold homes that are similar in size, age, floor plan and other specs to the home you’re thinking about buying.
Typically, comps in a certain area will fall within the same price range. If the house you’re thinking of placing an offer on is priced significantly higher than a similar home on the same block or in the larger neighborhood, it could mean the house is overpriced.
To determine if you’re looking at an overpriced house, have your real estate agent – who might be a buyer’s agent – conduct a comparative market analysis (CMA). This report will track the last 6 months of comps in an area so you can get a sense of an appropriate house price range for the home you’re viewing.
2. How Long Has The House Been On The Market?
Another indicator of whether a house is overpriced is how many days the home has been listed on the market. Days on the market is a metric indicating the number of days between when a home is initially listed and when the home goes under contract.
Homes listed within the same type of market – for example, a seller’s or buyer’s market – typically go under contract in similar timeframes:
- Seller’s market: Homes listed in a seller’s market tend to go under contract quickly. As of August 2022, homes were averaging 16 days on the market, according to the National Association of REALTORS® (NAR). If the home you’re viewing hasn’t received an offer after a month of being listed, it could be a sign of overpricing.
- Buyer’s market: Because the number of listed houses exceeds the number of buyers, homes tend to sell more slowly in a buyer’s market. However, if a home hasn’t received an offer after 3 – 6 months on the market, it could signify an overpriced home.
Other variables can affect how many days a home spends on the market. For example, higher-end homes, even when priced reasonably or competitively, generally list for longer than the average single-family home. An area that qualifies as a hot real estate market can also move listings more quickly than an average market.
However, be sure to cross-reference the comparative market analysis your real estate agent prepares. The home you’re viewing may have more square footage, bedrooms or updates than other comps in the neighborhood. But if neighboring homes are selling much faster, it could be an indicator of an inflated home value.
3. Has The Home Received Any Offers?
If the home you’re considering has been listed longer than is typical, ask your real estate agent or REALTOR® if the house has any competitive offers or any offers at all. Knowing this can help you determine if the home is overpriced and what your next steps should be.
If a home hasn’t received any offers despite several open houses and months of being listed, it could be a telltale sign that the homeowner is asking for a far higher price than potential home buyers – or the market – think the home is worth.
If you’re serious about the property, this could present a good opportunity for you to strategize with your agent to determine a strong, lower-than-asking-price offer.
Similarly, if your real estate agent tells you the home has received only low-ball offers, it may suggest the seller has overpriced their home. Several low-ball offers in the absence of any counteroffers may also indicate the home seller has no interest in negotiating with any offers below the list price.
4. Has The Home Recently Been Under Contract?
A buyer’s financing can sometimes fall through, forcing the seller to relist their home after it’s been under contract. However, if a home swings from under contract – or pending – to being back on the market several times, you and your real estate agent may want to do a little investigating.
A home being relisted after being under contract could indicate that its market value is appraising for well below the seller’s asking price. A home appraisal or inspection may have also revealed issues with the home that will require immediate attention and/or costly repairs.
Any issues that arose from the appraisal or home inspection would likely be included in the seller’s disclosure once the homeowner relists the home. But if the seller refuses to address the issues or reduce the asking price, it could be a sign you need to move on from the overpriced home.
5. Does The Home Have Expensive, Customized Amenities?
The more unique an upgrade, the less universal appeal the renovation or remodel will likely have. For example, pickleball may be trending as a hot new recreational sport, but that doesn’t mean the indoor pickleball court that the sellers installed will be a big hit with every potential buyer.
If a seller has set an asking price to recuperate the costs of customized upgrades they’ve made, it could mean you’ll have to overpay to purchase the home – not to mention spend even more in a costly remodel or home improvement project to renovate out some of those unique amenities that you’d rather not be part of the home.
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How To Bid On An Overpriced House
Now that we’ve covered how to determine if a home is overpriced, let’s go over a few strategies for bidding on an overpriced house:
- Partner with an experienced agent. Your real estate agent or REALTOR® is a great ally when trying to avoid overpaying for a home. They can research the property’s history and see how the house stacks up to comparable homes to ensure the market supports the seller’s asking price and help you make a more competitive offer.
- Collect convincing evidence. The property information that a buyer’s agent helps you gather – including comparative market analysis, property history and seller information – will help you make a more convincing case when negotiating for a lower purchase price.
- Learn why the seller is listing their home. If the seller needs to sell their home quickly, they may be more receptive to negotiating with you. However, you can also save time by making an early determination about whether a seller feels no urgency to sell and is content keeping the home on the market until they get an offer that matches their asking price.
- Hone your negotiation tactics. If you’ve partnered with an agent or REALTOR®, they’ll facilitate negotiations between you and the seller. However, you’ll still want to sharpen your skills so you can negotiate the best home price, convince the seller to agree to a contingent offer – such as an inspection contingency or appraisal contingency – and maybe even cover part of your closing costs.
The Bottom Line: Knowing How To Tell If A House Is Overpriced Can Help You Not Overpay
Asking the right questions and working with an experienced real estate professional who specializes in your local housing market are the best ways to ensure you don’t overpay when purchasing your new home.
While your real estate agent can help you navigate the home-buying process, you can help your agent find the best home for you by getting approved so you know how much home you can afford. Start a mortgage application to see what you qualify for.
Take the first step toward buying a house.