Is That House Really Worth It? How to Spot Overpriced Homes

List Prices: The Great Illusion

Here's a truth bomb: the price you see listed for a house is often, well, made up. It's not necessarily a reflection of the home's actual market value.

Why? A few reasons:

• Sellers aiming for the stars: They might be hoping for a bidding war or simply testing the waters.
• Agent promises: To win the listing, some agents inflate the house's value, telling the seller what they want to hear. For instance, "I think your house is worth $600,000," when another agent suggested $400,000.

So, how do you cut through the noise and figure out what a house is really worth?

Zillow: Your Research Powerhouse

I use Zillow a lot. Should you click the buttons to meet realtors on Zillow? No. Zillow is taking a cut of their commission, or they are paying Zillow for your info. Don't fall for it.

But here's why I like Zillow: the price history. It's an amazing tool. I see crazy things in there.

Check out these scenarios:

• The perpetual listing: A house listed every year since 2020 for $600,000? If it didn't sell when interest rates were practically zero, it's not going to sell for that now. This tells you the seller is stuck on a number.
• Seasonal swings: The price history might show the seller would have accepted $520,000 last summer, but now they want $600,000. Unless the market has drastically changed, that's a red flag.

Looking at the price history helps you understand the seller's mindset and identify unrealistic expectations.

Red Flags in the History

Beyond just the price fluctuations, watch out for these warning signs in the price history:

• The "Back on the Market" merry-go-round: If a house goes under contract repeatedly and falls through, something is likely wrong.

You might hear the listing agent say, "No fault of the house!" Don't automatically believe it. I've seen countless situations where the buyer's inspection reveals major problems, like a cracked foundation. The buyer calls me up, "Hey Jen, is it a problem that the foundation's totally cracked and it's going to fall apart?" YES YES, it is!!

Be skeptical of the listing agent's comments and do your own investigating!

Comparable Sales: The Key to Value

So, how do you figure out a home's true value? This is where your real estate agent shows their value. Ask them to run comparable sales before you get serious about a house.

Comparable sales show you what similar properties in the area have sold for recently (within the last six months).

Here's how to use them:

• Overpriced example: The house is listed at $600,000, but comparable sales show similar homes selling for $480,000? It's overpriced.
• Justified price example: Similar houses are selling for $600,000? The price might be reasonable.
  
  
  

The Appraiser's Role

Ultimately, once you are in contract, an appraiser will assess the home's value. They will look at comparable sales, ideally within the last 6 months, but up to a year is acceptable. Using data older than that is rare, and usually only done for more unique properties.

Sanity Check: "Are They on Drugs?"

Let's be honest: seeing wildly overpriced homes can be frustrating. You might even think, "Are they on drugs?" It's okay to feel that way. But instead of getting angry, use the tools we've discussed – price history and comparable sales – to stay grounded and make informed decisions.

Additional House Hunting Tips to Stay Sane:

The Seven-Day Search Rule

Here's a tip I use: I only look at listings from the past seven days.

Why? Because the longer you search, the more desperate you get. You start to compromise and lower your standards. You think, "Oh, this house isn't that bad," or "I don't really need an office."

If you've been searching for a while, reset your search parameters and focus on fresh listings.

Homeowners Insurance: The Hidden Cost

Don't trust the insurance estimates you see on real estate websites. They're often way off.

Homeowners insurance can significantly impact affordability. In some areas, it might be $3,000 a year, while in others, it could be $20,000 a year for a $400,000 house!

Before you fall in love with a property, get an insurance quote from a real agent. For example, I email potential properties to my insurance guy, Dwan, and ask him to check them out. Areas with high insurance costs include Florida, California, Louisiana, parts of Georgia, and Tornado Alley.

Crime Maps: Prioritize Safety

Safety is a big concern for many homebuyers. I use crime maps to get a sense of the neighborhood.

The Rate app (formerly Guaranteed Rate) has a crime map feature on its housing serch. It is one of my favorite filters to use as it can be eye-opening, even in areas that seem safe. Keep in mind that crime maps don't show registered sex offenders. Check your state's sex offender registry for that information. Safety is important to your overall comfort in a home. You can find the rate app in your phones app store. Make sure to pick me as your loan officer😉

In Conclusion

Navigating the housing market can be tricky, but with the right knowledge, you can make informed decisions.

Remember:

• Prices are often inflated.
• Comparable sales are your best friend.
• Insurance can make or break affordability.
• Limit your search to avoid desperation.
• Prioritize your safety.

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