It’s so easy to get caught up in the excitement of buying a house. But if that excitement turns into overpaying for it, the excitement can dwindle. Here we provide you with the top tips to stop this from happening to you.
Do Your Homework to Avoid Overpaying
First and foremost, you have to do your homework. If you have a real estate agent, this step is a little easier for you. It doesn’t let you off the hook, though.
You need to know the value of comparable sales in the area. You can easily find this information online. You should look for homes that sold within the last 6 months in the same neighborhood. Of course, they should have the same square footage, number of rooms, and basic features too. If the price of the home you want is much higher, you know it’s overpriced.
Your real estate agent should be able to help you with this step. If he can’t or you don’t have one, do your own research. Try sites like Zillow or Trulia to get the answers you need. You can also consult with a local real estate appraiser for some advice.
Don’t Rush Buying a House
Life happens and sometimes you have to get a house in a hurry. But, this is the easiest way to overpay for one. If it is a sudden emergency for you to find a home, enlist the help of a professional. Don’t handle it on your own. You are more likely to make rash and financially destructive decisions that way.
It generally takes buyers several months to choose a home. They take their time looking at different areas. Once they settle on an area, then they need to narrow down their choices for a home. When done right, this can take months. Of course, there are times when the right house just comes along. You shouldn’t enter into a sales contract until you are sure it’s a good deal though.
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Even buyers not in a rush overpay for a home. They let their emotions get the best of them. They walk into a home and decide it’s everything they ever wanted. They immediately put in a high bid and sign the sales contract. Again, don’t rush. You may be able to get your dream house for a lower price. Don’t let the thought of it getting away from you force you to overpay.
Use the Appraisal Contingency to Avoid Overpaying
A good sales contract has contingencies. One of the most important is the appraisal contingency. This gives you the option to back out of a contract if the value is less than the sales price. Of course, it’s up to you if you want to back out.
If you decide to purchase the home even though it’s worth less than the sales price, you’ll need cash. You will have to come up with the difference between the appraised value and the sales price. This is in addition to the down payment you agreed to put down. Sometimes, the seller will agree to a lower price, but it might be a “meet you in the middle” type negotiation.
If you have the appraisal contingency, though, you have the option to back out completely. This prevents you from paying too much for a home that isn’t worth it.
Avoid Bidding Wars
Bidding wars happen all of the time in the real estate industry. You often see them after an open house.
A large number of buyers walking through a home can cause the excitement to increase. It could be the same home that others walked through on their own and weren’t impressed. But suddenly, with more people there, the home seems highly desired.
This pressure can suddenly cause people to start bidding on the home. Before you know it, you are involved in a bidding war. One buyer tries to outdo the other. The only person that comes out on top in this situation is the seller, though. He gets more money than he probably expected. The winning buyer, however, may end up overpaying for the home.
If you can avoid open houses, do so. Try to look at the home during a private viewing. This way you get a better perspective of what the home is actually like. If you decide you do like it, you can bid on it with a level head rather than being caught up in the commotion.
Don’t Represent Yourself
Using a real estate agent costs the buyer nothing. But, if you don’t use an agent, it could cost you a ton. A real estate agent knows the fair value of homes in the area. They can also tell when sellers are trying to take advantage of buyers. If you represent yourself, you may end up overpaying for a home that you could have gotten for much less.
Don’t settle for just any agent, though. Make sure you hire one that has experience in the area you want to live. Ask specific questions about his/her experience to make sure you have the best representation for your home purchase.
Overpaying for a house is an expensive mistake. It can cost you thousands of dollars over the next 30 years. You not only pay too much for the home at the onset, but you’ll pay more in interest over the life of the loan. Try avoiding these top mistakes to make sure you pay only what your dream home is worth.