No one wants to overpay for a home. But suppose you stumble upon a property you love in a neighborhood that seems customized for your needs–a place that makes you want to shout, “This is it!”
Only the price tag makes you gasp. “There can be a lot of lifestyle factors so compelling that you could be willing to take on the competition,” says Keith Gumbinger, a vice president at HSH Associates, which tracks mortgage and housing markets.
Suppose, for instance, you’ve been battling a long commute to your office. Then you discover a wonderful community just 10 minutes from work and even closer to an acclaimed neighborhood school for your kids. Besides, the house is in mint condition–what real estate agents call a “creampuff.”
Maybe a couple of other interested buyers have already submitted strong bids. There’s still a chance you could win the property–assuming you and your agent craft a very competitive offer.
Still, no matter the allure of the home and neighborhood you’ve pinpointed, you can’t afford to ignore the possible risks of overpaying, especially if you’ve chosen an area where prices have already soared in recent years, Gumbinger cautions. Here are several pointers for prospective home buyers:
– Don’t forget all that talk about possible price drops. For several years, the media has pumped out stories projecting that “the bubble could burst” in neighborhoods where housing prices have ascended at breathtaking rates.
But recent statistics show that few housing markets have lost steam lately, and many remain strong. Indeed, some desirable communities could still be classified as hot sellers’ markets.
This month, the National Association of Realtors reported that median home prices are still rising at a “respectable rate” in most areas, though the pace of appreciation has slowed. In numerous neighborhoods, would-be buyers still outnumber sellers, says Walt McDonald, president of the Realtors’ association.
As Gumbinger stresses, the buying frenzy in recent years has depended in large part on mortgage rates that are still hovering around 40-year lows. “Take away the low mortgage rates and the party–along with the punch bowl–could be gone pretty fast.”
So what if you’re smitten with a home in one of those popular enclaves where values continue to rise at double-digit annual rates and there’s talk that prices might be close to their peak? “Buying that house now might be a gamble–at least in the short term. But maybe it’s one worth taking if you plan to stick around for a long time,” Gumbinger says.
– Ground your bid on facts, not fantasy. Listing agents supply sellers with extensive information on recent comparable sales in the same neighborhood, along with numbers on pending transactions in the local pipeline. But buyers also need to be armed with facts–especially before heading into a contentious buying situation. Otherwise, they’re flying blind, says Leo Berard, charter president of the National Association of Exclusive Buyer Agents.
– Consider turnover levels in the neighborhood where you wish to live. Whether you decide to pull out all the stops to beat rival bidders for a home you’ve chosen could depend in part on how often properties go up for sale there.
Although no two neighborhoods are the same, real estate agents say many clients could live happily in any one of several neighborhoods. If turnover in the area where you wish to live is fairly swift, you might prefer to wait for the next appealing listing.
– Contain your exuberance, no matter how much you want a home. If you see yourself heading into a battle over a particular property, you may wish to set a dollar ceiling for yourself. One way to help ensure that you’ll stick to your price ceiling could be as simple as writing your top dollar figure on an index card and placing it in your pocket. Refer to the card before making–or increasing–your bid.
