Should You Over Pay For A Home

By
Services for Real Estate Pros with The Real Estate Investment Institute 1retiredsage

Should you over pay for a home? Should you ever pay more than the house appraises for? Should you ever pay more than the house is listed for?

Should you over pay for a home, possibly! Should you ever pay more than the house is listed for, a house No! A home possibly. There is a difference between a house and a home. A home, a place for your family, a place of your own is often worth more than the sum of it's parts! A house, one that's not intended to be your home is rarely worth more than it's list price and almost never more than it's appraisal.

It's an interesting contradiction, isn't it?

You can never get into trouble with classic conservative advice is never pay more than appraisal, but some times it's hard to successfully excel with such constraints.

With out questioning the validity of the appraisal there are few reasons to you over pay for a home. We are in the people business and homes should be bought from the heart when the buyers can afford the luxury of choice.

 Should you over pay for a home? One very experience agent Renee Burrows says: "As a buyer's agent I would work on a price reduction first... If that doesn't go through, the buyer would then have to consider whether to pay the difference between the sales price and contract price in addition to their down payment and closing costs."

Should you over pay for a home? Don't over pay, remains good advice in all markets. If this is an investment it should be absolutely don't! If this is a HOME and the buy can afford it we have to consider the people factor and consider the emotional factor and Renee did say "Consider!" every thing is relative. There is always more than one way!

Should you over pay for a home? The question is two fold should you over pay based on the appraisal or should you over pay the list price? The list price is the amount the seller is willing to settler for, not necessarily even relevant to the value!

Should you over pay for a home? People say don't for many reasons, the most common are:

It's the right advice!

They don't want you taking any risk.

They don't want you succeeding where they don't.

There is no down side, to saying don't! (If they say "Do" and you fail they feel libel, but if you succeed they can simply add "you got lucky!")

Don't is always safe advice, what we forget is man has never had great success with out risking great failure!

Should you over pay for a home? Maybe!

 

 

Posted by

Bill

William J Archambault Jr

The Real Estate Investment Institute

wja@reii.org      Cell 832-259-7078,      Houston 832-582-8415,       Las vegas 702-516-1569

     http://www.reii.org  Back Cover One House At A Time http:www//reii.orghttp://www.flippingforfunandprofit.info/ http://www.billarchambault.com   

From my past: GRI 1975, FLI 1974, Catalyst from a client 1974 an agent that makes things happen, REII, The Real Estate Investment Institute 1995.

http://www.reii.org

©William J Archambault Jr   ©The Real Estate Investment Institute   ©REII

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Re-Blogged 2 times:

Re-Blogged By Re-Blogged At
  1. Ira Freireich 09/02/2009 03:16 PM
  2. Brian Gibbons 09/02/2009 05:17 PM
Topic:
Home Buying
Location:
Texas
Groups:
America's Best Agents
Art of Professional Salesmanship
Home & Credit Savvy
Short Sale REALTORS®
Silent Majority
Tags:
appraised value
list price

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Rainmaker
193,605
Jirius Isaac
Isaac Real Estate &TriStar Mortgage - Kenmore, WA
Real Estate & loans in Kenmore, WA
HVCC indeed terrible law. We get the worst appraisers and they get paid nothing. Everybody losses except the 3rd party appraisal companies.
Sep 02, 2009 11:50 PM #115
Rainmaker
898,939
Lottie Kendall
Today | Sotheby's International Realty - San Carlos, CA
Serving San Mateo County and San Francisco

Bill, thanks for your post. Great comments from everyone here. Emotion plays a huge part in buying a home.

We were selling a vacation condo on Kauai when Hurricane Iniki hit two days before closing. The buyer, who had vacationed there before, proceeded with his purchase, wanting to be part of the re-building of Kauai. Sale closed only a couple of days late.

Sep 03, 2009 08:49 AM #116
Ambassador
673,702
Karen Crowson
Alain Pinel Realtors, Pleasanton, CA - Livermore, CA
Livermore Wine Country Homes

That's a tough call.  Appraisers haven't been in each and every house in a given market, and may not experience the 'wow' factor, or the emotional connection the buyer makes with the property.  When the buyer starts mentally placing furniture and envisioning themselves living there, the value in their eyes just went up.  If the list price brings in more than one buyer and your client doesn't want to lose out, then it's a call they have to make about offering more.  Appraisers I know say that it's important for them to know about multiple offer situations.  Make sure you communicate that fact.  It's certainly a factor when they consider supply and demand.

Sep 03, 2009 09:30 AM #117
Ambassador
715,524
Mike Frazier
Carousel Realty of Dyer County - Dyersburg, TN
Dyersburg Tn Real Estate

William,

I saw this featured the other day but got distracted from commenting. Sometimes people do have to pay over the list price but sometimes the list price is lower than appraisal to get a quick offer. congrats on the feature my friend!

Sep 03, 2009 01:24 PM #118
Rainmaker
591,134
William J. Archambault, Jr.
The Real Estate Investment Institute - Houston, TX

Kristie,

"I'm not sure that you can lose money on a life style."

I agree!

Bill

Sep 03, 2009 01:33 PM #119
Rainmaker
591,134
William J. Archambault, Jr.
The Real Estate Investment Institute - Houston, TX

If I didn't answer all of you I'm truely sorry!

Time it fletting.

Thank you all.

Bill

Sep 03, 2009 01:36 PM #120
Rainmaker
197,730
Mark Velasco
Realty Source, Inc (Luxury Homes Division) - Whittier, CA
Friendly Hills Homes for Sale - Whittier, Ca. Real Estate - Listings

Hey Bill. I overpaid my home $10,000 over the appraisal 8 years ago. In the Ca. market at the time people were paying $10,000 to $20,000 OVER the appraisal. However, the home prices were going up $10,000 per month at the time. It was the BEST decision that I ever made. Even though prices have been cut in half. I still have $150,000 in EQUITY. It DEPENDS on the market conditions at the time.

Sep 03, 2009 09:13 PM #121
Rainmaker
591,134
William J. Archambault, Jr.
The Real Estate Investment Institute - Houston, TX

Mark,

Not to mention it's your home!

Thank you for sharing!

Bill

Sep 03, 2009 09:19 PM #122
Rainmaker
154,836
Margaret Mitchell
Coldwell Banker Yorke Realty - York, ME
Seacoast Maine & NH Real Estate

I would pay more than list if a property is priced below market value.  It drives me crazy when buyers, and their agents, cannot distinguish btwn over priced and well priced property.  They feel that if an over priced home sold for 20% below list, that they can offer a flat 20% off on the well priced home.

Sep 04, 2009 03:46 AM #123
Rainmaker
591,134
William J. Archambault, Jr.
The Real Estate Investment Institute - Houston, TX

Margaret,

All we can hope for is an educated consideration.

Thanks for joining us.

Bill

Sep 04, 2009 07:07 AM #124
Rainmaker
95,545
Kathie Burby
Real Living Sugar Pine Realty - Sonora, CA
REALTOR, SFR, Tuolumne County Real Estate Guide

Maybe...Not usually...depends - They are all good answers to the question you posed "Should you over pay for a home?" As long as the decision is well informed and the buyers eyes are wide open Maybe...Not usually...depends

Sep 04, 2009 05:17 PM #125
Rainmaker
281,342
Steven Pahl
Keller Williams Tampa Properties - Tampa, FL
Real Estate Consultant Tampa, FL 813-319-6423

Kathie says it well, sort of, kinda.  Negotiate the difference between contract and appraised price and if they have the financial means and desire to pay the difference, it is the buyers who make the final decision.

Sep 06, 2009 07:19 AM #126
Rainmaker
591,385
Valerie Osterhoudt
Johnson Real Estate, Inc. - Cromwell, CT
ABR, Cromwell, CT Real Estate ~ 860.883.8889

I am finding lately it is hard to get the seller to see the *whole* picture.  It seems they want the price of their home to be where it was 5 years ago... and buyers want everything for nothing.  It is hard to get the two to meet.  Negotiating is the key in this business right now I feel.

 

Sep 06, 2009 08:33 AM #127
Rainmaker
812,999
Gail Robinson
William Raveis Real Estate - Southport, CT
CRS, GRI, e-PRO Fairfield County, CT

Appraisals tend to focus on the basics in comparing a 3 bedroom, 1.5 bath home to another one.  If a buyer is planning to resell the home and cares about resale value, then they should care about whether they are "overpaying" for a home because the home will not appraise and other buyers won't be able to buy the home unless the market appreciates between the time they buy it and sell it.  If they are planning to live in the home forever and don't care about the resale value, then even though a home is higher than the comparables, there are sometimes aspects of a home that are worth a lot more to one buyer than another.  It's important that the buyer be fully aware that they are overpaying compared to comparable sales and to understand that the home might not appraise, so there are no surprises.  This is becoming more and more of an issue as appraisals come in lower than anticipated and the buyers still want to buy the home.  Sometimes sellers can't go any lower in price.  Then what?

Sep 06, 2009 11:29 AM #128
Rainmaker
591,134
William J. Archambault, Jr.
The Real Estate Investment Institute - Houston, TX

Kathie, Stevean,

Thank you!

Bill

Sep 06, 2009 12:02 PM #129
Rainmaker
591,134
William J. Archambault, Jr.
The Real Estate Investment Institute - Houston, TX

Valerie,

As I sit here across the room the TV is showing about the 4Th real estate show this morning bad advice followed by even worse advice! If I switch to the propaganda/news programs it's nearly criminal what they're saying.

Educating your client is the biggest obstacle.

Bill

Sep 06, 2009 12:09 PM #130
Rainmaker
591,134
William J. Archambault, Jr.
The Real Estate Investment Institute - Houston, TX

Gail,

Appraisers appraise houses, most buyers buy HOMES same building but at times there can be major differences in value! Banks finance houses, but they do offer lower rates to owner occupied/home buyers.

"It's important that the buyer be fully aware that they are overpaying compared to comparable sales and to understand that the home might not appraise, so there are no surprises." Is great advice!

Bill

Sep 06, 2009 12:19 PM #131
Rainmaker
591,134
William J. Archambault, Jr.
The Real Estate Investment Institute - Houston, TX

Gail,

Appraisers appraise houses, most buyers buy HOMES same building but at times there can be major differences in value! Banks finance houses, but they do offer lower rates to owner occupied/home buyers.

"It's important that the buyer be fully aware that they are overpaying compared to comparable sales and to understand that the home might not appraise, so there are no surprises." Is great advice!

Bill

Sep 06, 2009 12:19 PM #132
Rainer
12,350
Brittany Loan
Keller Williams Realty Partners - Woodstock, GA
Cherokee & Cobb County, GA

Interesting points of view.  In our market, there are homes LISTED way under "value" and receiving multiple offers as soon as they come on the market.  There are variables, such as asset managers that for whatever reasons, don't really have a good handle on the value of the home.  Additionally, an apprasial is an opinion but a purchase and sale agreement is a fact.  Some appraisers a VERY VERY conservative and others are just plainly incompetent.  A home is worth what a buyer is willing to pay for it and a seller is willing to accept.  I had a client submit a full price offer with no seller concessions (this was a Home for them).  We were requested to submit "their highest and best" due to multiple offer situation.  Ther were willing to pay $19,000 more than list price and did get the property under contract.  When they had it appraised, it appraised $100,000 higher than list price.  I also have an investor that made an offer last week and yes, you guessed it multiple offer situation, which invariably leads to final sales price higher than list price.  Even at 110% above list price, this property will positive cash flow over $1,000/month.  Is that worth paying a few thousand more than the bank was asking?  All these reasons and variables are why there is never one right answer to your question.

Sep 07, 2009 05:28 PM #133
Rainmaker
591,134
William J. Archambault, Jr.
The Real Estate Investment Institute - Houston, TX

Brittany,

You keep talking about "HOMES" but appraisers and lenders deal in houses!

As to your investment property, you don't provide enough information to reach a conclusion. $1,000 positive cash follow sounds great but what's the IRR? How does it compare to the market?

On the other hand do you know how to sell a 2% return? You find some one currently only making 1% and double their money! The point being that a doable deal that makes money is better than a great deal that you can't get! We keep coming back to the fact that real estate is a people business! One person's bad deal could be another's deal of a life time.

Bill

Bill

 

Sep 07, 2009 09:40 PM #134
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Rainmaker
591,134

William J. Archambault, Jr.

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