Is it OK to Overpay?
Bidding wars. Houses selling over appraised value. Sales prices that end up well over the list price. We’ve all heard the tales of woe from buyers in North Texas lately. In popular neighborhoods and price points, some buyers are feeling compelled to pay more than market value for a house, just to get something. Are buyers being taken for a ride? Or is it a smart strategic move to pay more than you think you should for a house? If there are people in the market willing to pay a higher than expected price for a home, isn’t that the market value? Is it ever OK to overpay?
Well, sometimes. You see, while the market is a fickle thing, there are some circumstances that are true no matter how the real estate market is performing. And the biggest circumstances may depend on you.
Market prices rise when a lot of people are looking for the same thing. But the value of a property isn’t the same thing as the price. The price of a house depends on whether a buyer is willing to pay an amount that the seller is willing to accept. It’s not based on expert opinion, but the sentiments of two parties. Value is different. The value of a property is based on an expert’s opinion of the property. That expert, an appraiser, will consider things like other homes for sale in the area, recent sales, the type of neighborhood, and improvements to the home. An appraiser might also consider other factors depending on who is requesting the appraisal. For instance, the same house might appraise differently for a home loan, insurance policy, determining taxes, or for liquidation. When someone says they’re overpaying for a house, they mean that they’re paying a price that is higher than the appraised value. But it might not mean they’re paying too much.
Housing markets are funny things. If a neighborhood is really popular because of location, schools, or nearby amenities, then people may indeed pay more than the value of a house. And if that neighborhood traditionally holds it value, chances are they could sell the property again for what they paid for it or more. So if a house you love becomes available in a place that you’ve always wanted to live, it might make sense to pay more. Plus, if you’re buying your forever home, the price you pay today might not matter as much. Real estate tends to appreciate in value over time, so long term investors can be more comfortable paying a premium initially if it means getting the right place.
If your dream home happens to be in a transitional neighborhood, paying a little more to get what you want might be a good strategy. Lower priced homes will often have more interested buyers, and a strong offer will be more likely to get noticed. Chances are good that appraisal values haven’t kept up with market demand, though, so you’ll have to have more cash on hand. Take care though, if you’re investing in a home that needs a lot of renovation. You’ll have to watch the budget to make sure you don’t dig yourself into a larger hole than you anticipated.
If you’re thinking about buying or selling a home, it’s important to get sage advice from a professional. Visit dfwrealestate.com to find a Realtor or to browse available homes in your area.
The MetroTex Association of Realtors represents more than 17,000 real estate professionals across North Texas.