In your hunt for a dream home, most buyers have one question continually running through their heads – “am I going to pay too much?”.
When the market is as hot as it is right now, there can be a sense of urgency and even panic that you will miss out.
Mistakes in real estate are rarely small ones. Paying a few thousand dollars over the odds for a home doesn’t matter in the long run, especially if you intend to own your home for 10 or more years. But if you truly go beyond market value, it can hurt your bank balance especially in the short term.
The question to ask yourself is “is this my forever home?”. If the answer is yes, it’s usually a little safer to go above the asking on a property. You don’t want to lose the home of your dreams for the sake of a few thousand dollars, but if the price starts to get more than 5% above your limit, it may be safest to simply start looking again.
Here are some tips to help you understand the best price to offer.
- Check-out recent sales – Use data on property websites or talk to local agents about the prices that have been achieved in your target neighbourhood in the last three months. This will give you a sense of the market mood.
- Compare properties – Focus on the style of property you wish to purchase and the features. Be diligent in comparing the prices of these homes as part of the research. ie: make sure you compare 3 bedroom homes with other three bedroom homes.
- Check what’s available – The laws of supply and demand dictate the price of most things, including real estate. If only a few properties fit your criteria, you may find the prices are edging up in response to buyer demand. Reverse the situation, and the opposite is true.
- Watch price trends – For your own financial success, you want the area to have experienced growth in property values. Check if any improvement to local infrastructure and transport are pending or under way. These can push prices higher once the infrastructure is completed and that can mean you enjoy a value boost after purchase.
- Use a buyer’s agent – There’s a small but growing trend towards using a buyer’s agent. They’ll save you from making basic mistakes and save you lots of time in terms of searching for suitable homes. When it comes to determining good value, or fair price, they’re in a prime position to offer advice.
- Gut feel – If the price feels too high, then it probably is – for you. Even if it isn’t, that uncertainty can play on your mind for weeks, months or even years. So, while a little bit of fear is completely normal, make sure you’re comfortable before moving ahead.
- Stick a toe in – If you see a home you like but think its price is a little rich, put in an offer to test the waters. Your proposal should be in the ballpark, or the owner and their agent will dismiss your interest. The response by their agent will tell you if it’s worth continuing the negotiations or if you should walk away.
- Obtain an inspection – An appraisal is a good idea. Make sure a building inspection is undertaken once you have signed a contract of sale. You should make a successful inspection contingent on the deal going ahead.
- Safety net – I recommend avoiding this final scenario at all costs! Your lender will appraise the property themselves. If you’re about to pay too much, they may refuse a loan because the property’s value won’t cover the mortgage. That’s a gut-wrenching way to discover your mistake because you could be contracted to the sale with no way to pay. So, be diligent with your homework and happy house hunting.