5 Ways to Tell If a Property Is Overvalued

It's not uncommon for a house to be overvalued in today's market. With supply low and demand high, sellers have the clear upper hand. As a result, they'll often overprice their homes in hopes of maximizing profit.

Unfortunately, this can lead to problems later -- most commonly, with appraisals. If a buyer offers more than the home appraises for, they're forced to make up the difference out of pocket or, in some cases, back out of the deal entirely.

Are you preparing to buy a home? Want to make sure you're not buying an overvalued property or, at least, that you're making right-sized offers for your market? Here are five ways to spot an overvalued home.

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Under today's conditions, homes shouldn't be on the market more than a couple of weeks before they go into "pending" status. (That means someone has a contract on it, and they're just waiting for their financing to close.)

If you're looking at a home that was listed months ago, consider it a major red flag. While it doesn't necessarily mean the property is overvalued, something is definitely amiss. In most cases, it will be the price or condition of the home. Your Realtor should be able to tell you which category it falls into.

ALSO READ: Buying a Home in 2022? 3 Tips for First-Timers and Seasoned Buyers Alike

Always look at comparable properties when you're eyeing a home. What are other houses similar in size, condition, age, and style going for? A difference of a few thousand dollars likely isn't anything to worry about, but if the home you're looking at is $10,000, $15,000, or $20,000 more, that's something you'll want to dig into.

Are there extra amenities that the seller may be accounting for (a pool or an extra bedroom, perhaps)? Have recent renovations been done to the property? Have your real estate agent do some research. They can even ask the listing agent what they feel justifies that higher price point.

With how hot today's real estate market is, some homeowners may be tempted to sell their homes themselves, skipping the real estate agent (and the commission they come with) and upping their profits in the process.

Unfortunately, most homeowners are neither well versed in real estate nor in tune with their local housing market. Because of this, they're much more likely than an agent to overprice a home. They're also more likely to be personally attached to the home, which can keep them from being open to negotiations. (Yet another reason you'll likely pay more for one.)

If you're considering an FSBO, always look at comparable sales to ensure the owner is asking a fair price. If they're not, use those comps to justify a lower bid or when negotiating.

ALSO READ: 3 Things You Need to Know About 'For Sale by Owner' (FSBO)

Unless there's something wrong with a property or its price, it should sell on generally the same timetable as other homes in the neighborhood or on the street. So, if you're thinking about buying a place, do a quick search on other for sale and recently sold homes in the area. How long were they on the market before they went pending? How far past that time frame is the home you're considering?

Generally speaking, the longer a home is on the market, the more obvious a pricing problem is. If you're looking at a home that's been on the market much longer than other properties, you might try negotiating the seller down or just waiting it out a bit. Chances are they'll lower their price in due time.

ALSO READ: The 2021 Housing Market: 89% of Properties Sell in a Month

Your agent should be able to see how popular a listing is -- how many showings it's received and how many online views it's getting. If these don't measure up to other nearby homes (or fall in line with current market trends for the area), the home likely isn't showing up in buyers' searches.

It might be out of the price range for typical shoppers in the neighborhood, or it just may lack some of the features or amenities most buyers are looking for. Either way, you'll want to reevaluate buying it -- at least for the current price it's listed at.

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You don't want to end up overpaying for a house or encountering appraisal problems just before closing, so always do your due diligence when vetting a house. Check comparable sales, consult your real estate agent, and know your local market inside and out. The more informed you are, the more effective homebuyer you'll be.

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