Home prices have been on the rise for years in many parts of the country. Homes in many markets are overvalued, creating the possibility of a real estate bubble. If you buy a house in the bubble and then the bubble bursts, you could end up underwater on the mortgage, owing more than the house is worth.
Of course, just because a house is expensive doesn’t mean it’s in a real estate bubble. There could be a genuine shortage of houses in the area, which drives up demand and therefore price. If that’s the situation, developers could end up building more houses in the area, meeting demand and driving prices back down – again, you could end up underwater on a house you bought when prices were high.
Often, however, a house is overpriced because the seller is asking more than the market can bear. Many sellers think their homes are worth more than they are; others overprice their homes hoping for a payday from someone naive enough to buy at a higher price. Here’s how to tell if a house you’re looking at is overpriced, so you can negotiate a better deal.
It’s More Expensive Than Similar Homes in the Area
In order to tell whether a given listing is overpriced, you need to look at the values of the homes that are nearby and comparable to it in features and size – these values are known as the “comps.” The easiest way to find real estate comps for a home you’re looking at is to ask your real estate agent to pull them for you.
You can also look at listings for nearby homes that are similar to the home you’re buying – same layout, number of bedrooms and bathrooms, square footage, lot size, and so on. Find the listings for comparable properties that have sold recently and look at how much they sold for. If you’re wondering how to tell if a real estate market is overpriced versus just a specific house, looking at comps is one way to go about it.
It’s Been on the Market a Long Time
Homes these days are spending an average of 67 days on the market. Some markets will be slower than others – homes tend to spend less time on the market in metropolitan areas and areas where demand for housing is higher than the local supply can keep up with. In rural and suburban areas, houses may be on the market longer. Still, if a home has been on the market for longer than a few months, it may be overpriced.
Other Homes Nearby Are Selling Faster
Find listings for other houses in the neighborhood that have sold recently, and look at how long they stayed on the market. If other homes nearby are selling faster – and especially if they’re selling for less – then the home you’re looking at may be overpriced.
The Listing Doesn’t Seem Very Popular
How can you tell whether a real estate listing is popular? Well, it will have lots of showings and open houses. The listing will get lots of views. Your real estate agent should be able to tell you how popular a given listing is. A listing that isn’t popular may simply lack some of the amenities or features that buyers expect from homes in the area. However, it could also be suffering because the house is overpriced.
The House Has Been Taken Off the Market and Put Back On
Sometimes, a seller lists a house for too much money, either accidentally or because they hope that one special buyer will come along and give them their dream price. However, when the house doesn’t sell for the amount they’re asking, they typically have no choice but to lower the price. Lowering the price can attract even lower offers as buyers may assume that the seller is desperate to make a deal. Some sellers avoid making this impression by taking the house off the market for a few weeks, then relisting it at a lower price.
You should be able to see on a listing whether the house has been taken off the market and put back on after a short period of time recently. Sometimes sellers do this more than once. It may be an indication that the house is still overpriced, especially if other houses in the area are selling quickly.
You don’t want to pay more than a house is worth – even if it’s your dream house. You could run into problems with the appraisal, or end up underwater on your mortgage. Do your due diligence, and make sure you’re not overpaying for your property.