5 Signs the Home You’re Trying to Buy Is Overpriced
You’ve heard the stories: The housing market’s so hot that real estate agents are knocking on people’s doors, asking them to consider selling. Online estimates of a home’s value can’t keep up with how quickly the numbers are climbing. That, combined with low mortgage rates, can create a frenzied sense of urgency to buy now. And it’s no surprise that Opendoor’s latest real estate survey found that most people’s biggest concern right now was whether they were spending too much on a home. So, how do you know? We spoke to the pros to uncover the top signs a home is overpriced.
1. The Price Per Square Foot Doesn’t Factor in the Cost of Renovations
One of the main ways to assess a home’s value is to look at comps, or the price of similar homes sold recently in your area. As part of this comparison, people often focus on the price per square foot, but that still presents a challenge: “What if your home is recently renovated, and mine is 20 years old?” asks Liz Young, CEO and founder of Realm, a platform that analyzes home data to determine its current—and potential—value. To combat this, Realm has a feature that lets people plug in comparable houses in the area to assess their condition and what the potential cost of renovations would be, giving them a better sense of the homes’ value. (The service even factors in how long ago the renovation happened—accounting for depreciation—and the cost of the materials used.) Young recommends looking at five to ten homes to get the best sense of pricing in your area.
After doing that research, if the price per square foot is considerably higher than others in the area—and you’re seeing comparable homes that are just as recently remodeled with similar-quality materials—the sellers are probably asking too much. (Pandemic greed is a real issue, after all.)
2. There’s No Build-Out Potential
“Square footage is one of the biggest drivers of home value,” Young says, which is why she urges buyers to consider not just the size of the existing home, but that of the entire lot. “Many millennial homebuyers can’t afford their dream home right now, so it’s critical to understand how to get closer to it in the future.”
Based on the size of the lot—and the city’s regulations—how many additional square feet could you add to the property? Maybe you’re springing for a smaller house now, knowing that you can add a room down the road, when you’ve had some time to save up. When you go to sell it later, that larger house will be worth more.
If the land is totally tapped out (and the house already feels small for your needs), you may want to think twice before buying.
3. It Keeps Flipping from on the Market to Pending and Back
These days, it seems like homes are rarely on the market for more than a day before they’re in contract. But if you see a house go from on the market to pending and back, take note. Many factors can cause this, like the buyer’s financing falling through, but if it happens repeatedly, that’s a red flag. Maybe the appraisal is coming back wildly off from the asking price; maybe the inspection is turning up a host of issues the seller doesn’t want to address (and won’t budge on the asking price to accommodate those costs). It’s worth asking your real estate agent to investigate before you make an offer. And, whatever you do, don’t skip the inspection.
4. It’s Got a Few Unsexy Replacements Coming Up
Does the price of the home also reflect the major appliances you’ll need to replace over the next couple of years? Home warranty service American Home Shield says one in five of its clients wind up placing a service request within their first 30 days of owning a home.
“Different systems wear out at different times,” says Raj Midha, senior vice president and general manager. “In our experience, appliance claims tend to hit their peak when a home is around 10 to 15 years old, while other systems, such as air conditioners, peak when a home is 15 to 20 years old. This is something you’ll want to be aware of when purchasing an older home to avoid any surprises later on.”
5. You Keep Coming Back to the Curb Appeal
You know all those stories you’ve read about low-effort ways to boost your home’s value, like painting your front door black or upgrading your landscaping? Well, now is time to keep them in mind as you’re oohing and aahhing over houses you tour. Fresh exterior paint, a new driveway, updated kitchen cabinets and a new front door are four high-ROI projects, Young says. But if they’re the only upgrades in a house that’s demanding top dollar, the sellers may be leaning on them too much.