Purchasing a new home is an exciting venture. You get to dream about what it will be like to live there and plan for projects for your new space. As you begin touring homes, you will likely only tour homes that are in your price range. However, even with the guidance of a realtor, how can you avoid overpaying for your new home?
Work With a Buyer’s Agent
When you purchase a new home, you may spend a lot of time on websites like Trulia or Zillow. However, hiring a real estate agent can help you save a lot of money. A good buyer’s agent will know about properties before they hit the market. They will also be able to help you research comparable properties in the area, make suggestions about which neighborhoods to explore, and help you negotiate the selling price of your new home.
It is important to communicate well with your buyer’s agent. When they have a good idea of what you’re looking for, they can conduct research to help save you time and money in your buying process. They will also be able to recommend other professionals to help you including a reputable inspector, a good lawyer, and give suggestions about which mortgage company to use.
Understand Fair Market Value
You will likely have a budget when searching for your new home. However, as you research properties, you may find that one property that is listed for $200,000 seems much nicer than another property listed for the same amount. This can be confusing for a homebuyer.
Fair Market Value (FMV) is the price that your home will sell for under normal market conditions. The FMV of your home will fluctuate based on the current market conditions. Therefore, the FMV, appraisal value, and market value of your home may differ. Understanding what a home is worth and whether the market is driving the cost of the home up or down is vital in ensuring that you don’t overpay for your new home.
Research Comparable Sales
Another way to avoid overpaying for your home is to do plenty of research on comparable sales. If you are working with a buyer’s agent, they will be able to run a report to show you the “comps” or comparable sales in your area. Comps are similar homes in similar neighborhoods that have recently sold.
For example, if you are looking at a property listed for $300,000 that is 2,000 square feet and in good condition, your agent will look for other properties with similar features. You might find that comps are selling for $275,000. Knowing this information will help you to negotiate a lower purchase price.
Get an Appraisal Contingency
In most home buying processes, the buyer will put in an offer on the home. If the seller accepts it, the lender will order an appraisal of the home’s value. If the appraiser comes back with a home value of less than the offer you put on the home, you will have to decide if you want to move forward with the home buying process.
Therefore, it is wise to include an appraisal contingency on the contract. Including this language will help to protect you from overpaying for your home. Most appraisal contingencies help to ensure that if the appraised value of the home isn’t more or less than 5% off of the agreed-upon purchase price of the home. If the appraised value of your home is significantly less than the asking price, an appraisal contingency will help you either get out of the contract or negotiate a lower purchase price.
Select the Right Mortgage
You may be aware that you should shop around for a mortgage. Just as you are shopping for a home that fits within your budget, you should also evaluate multiple mortgages. By shopping around, you can ensure that you are getting the best interest rates, especially if the interest rates have recently been cut. Some lenders will charge different fees and interest rates, and this will affect your monthly payment as well as the total you pay for your home.
Shop in The Right Neighborhood
You likely have a neighborhood or city that you want to purchase a home in. However, make sure the neighborhood you are purchasing in is on the up-and-up so that your property value doesn’t decline over time. Your real estate agent will be able to help you understand the market trends, but you should also do some research on your own.
For example, follow local news to understand if there are large building projects planned for the future. New playgrounds might make your neighborhood more attractive, but a new exit off the freeway nearby might make your neighborhood louder and thus less attractive to buyers.
The Bottom Line
Even if you plan to live in your home for years, you should think about the resale value of your home. The neighborhood that your home is in and its trajectory is a huge factor in the future value of your home, but it isn’t the only thing you should consider.
When you spruce up your home or make home improvements, it can affect the resale value. You can make sure you’re not overpaying for your home by working with a strong team of professionals and doing plenty of your own research. Keeping all these tips in mind will help you to have a successful home buying process and ensure your home is a worthwhile investment.