Got feelings about overpaying for a house? This week I’m going to share with you why you should "overpay" for a house. Now before you get upset with me, hear me out. Keep reading or watching and keep an open mind. Just think about what I’m about to say and if you still disagree, post your opinions in the comments. I want to know what you think! I also want to know in the comments if you have had a change of heart once you’ve heard what I am about to say as well. So let’s get started.
Back in 2017 we bought a 6 bedroom house for $285,000 in Colorado Springs, Colorado. The house has over 2,600 square feet. There are 3 bathrooms and a two car garage. The price was about $100 per square foot. At that time I felt we had overpaid for the house. I loved the home, but felt like we were overpaying because just several months earlier, this same house would have sold for probably closer to $215,000 and we could have gotten the seller to help out with closing costs, too. But this home was perfect for us. It had enough square feet for our big and blended household, but not too big where I felt like I was always going to be cleaning and dusting all the rest of my life. We decided to buy the house. You may have some questions and concerns about overpaying for a house, especially if you’re a first time homebuyer, but hopefully after going over these next few common questions, you’ll feel better.
How do you know if you’re paying too much for a house?
You’ll know if you’re overpaying for a house by looking at the comparable homes in the area. So
the first thing you’d want to do is find a real estate agent that’s been in the industry for awhile and understands the housing market. Your agent should know if the house is priced too high or not. Right now in this market, homes are going very fast so if you see one that is on the market still after 5 days - and I’m not talking about on Zillow, because their info is not accurate often times, but after your agent has set you up on a search and you saw a house you liked, but didn’t like the listing price, but you go back maybe 5 or 6 days later and it’s still there, it is likely overpriced. This is not a bad thing! This is a great opportunity to write a fair offer that’s maybe slightly below the asking price or ask for help with closing costs. You don’t want to go too low because in previous experiences I’ve had buyers offer much lower than the list price and the seller usually gets offended. You then create a negative emotion around the offer and it’s difficult to bounce back from this if you decide to try to change your offer. But, even if the lender qualifies you for that “overpriced” house, you could still be overpaying.
What if I offered too much on a house?
If you offered too much on a house and you’re having buyer’s remorse and feelings of regret, you may want to talk to your agent to see if there's a way that you can cancel the contract. Some people get hyped up on the highest and best offers just to win, but when you actually win and you didn’t want to, then that sucks. It sucks for everyone. Don’t do that. You waste everyone’s time, efforts, and energy, especially yours. Do this instead. Write down how much this house means to you. On a scale of 1 to 5, where does this home sit? If it’s a 3, don’t overbid. If it's 4, think about the most you’re willing to pay for this house and write that number down. Make sure you do this part of writing the max price down. Because when you see the number you can go back and refer to it, visually. Like no, this is the number and this is the amount that I said I would not go over when I was in my right mind. If it’s a 5, well then make your offer amazing. But if you’re just getting nervous because you think a housing crash is on the horizon or values will go down significantly, experts are saying that housing will continue to be strong over the next year. Be responsible and have a good savings strategy. Follow Dave Ramsey as much as you can, and try and get that house paid off as soon as possible. You can get the 30 year loan, but double up on payments or make extra payments here and there. But your home value is highly likely to increase in value according to real estate experts and you’ll see that money back long term. Just don’t go over your budget and start resenting your house. If you buy an older home, budget for an extra 5 to 10k on potential house repairs and make sure you get that warranty!
Should I pay more for a house than the appraised value?
This really depends on the previous concern. Try the 1 to 5 scale technique and think about how you would feel paying the difference from the appraised value and the offer. If you think about it this way, this is an investment that you get to live in, make memories in, go to the bathroom in, cook dinner in, sleep in, give the baby baths in, pick up the dog’s poop in, fall in love with your spouse all over again in, paint walls, build decks, power wash fences-ok you see where I’m going with this. Your IRA and stocks may grow at close to the same rate, but you don’t get to do all the fun things with it. So maybe shifting your mentality about it may help you. Speaking of investment accounts, sometimes you can pull from one investment to another and a house is eligible so if that makes you feel better, that can be an option, too. Most people don’t know that. Most agents don’t even know that.
Overpaying for a House You Love
Even though we overpaid for our house 4 years ago, we have no regrets at all. We’ve gained over $200,000 in equity so far. Housing is always going to be the number one need to basically exist. Unless tiny homes take over or we go rugged in the mountains. One thing we had to make sure of was that we could afford the payments and that if something were to happen to our income, we’d get on Dave Ramey’s plan to help with damage control. We’re happy with our little investment. I remember when home prices started rising back then, people said it was unsustainable and volatile and to wait until prices went back to normal. Well that was 4 years ago. Those who waited are paying for it, literally.
If you want to learn more about this topic on home buying or whether you should buy now or wait, read this blog next or book a call.