Homebuyers looking to purchase a property in virtually any urban centre in Canada are often faced with a shocking price tag. While some markets are still moderately affordable, other markets seem to consistently command high and higher prices. The trick is to not caught into paying more than the home, and the land, are actually worth and make sure you’re not buying an overpriced house.
Here are five ways you can spot an overpriced home before you make an offer.
1. Overpriced compared to its neighbours
If you suspect that a home is overpriced, do a little digging to support your theory. Use a home value calculator to see what the estimated price of the house is, as well as checking out the houses next door. Keep in mind these public calculators are based on general assumptions and algorithms, so they won’t provide a consistently accurate snapshot — but they will give you a good starting spot. If your initial research finds that the home you’re looking at is priced much higher than similar properties of the same size and bedroom count, then it’s time to move on to a more specific data.
Talk to your real estate agent about getting recently sold data in the area where the property is located. This hard data should include pricing up to and including the last three months. This timeframe should give you a realistic idea of the price range for the neighbourhood and whether or not the home’s current asking price is in line with current market valuations. If the price is above the most recent sale prices — and its still comparable to all the other properties in the neighbourhood — then you’ll know the house for sale is definitely overpriced.
2. The price does not match the location
The location of the house is also a big contributing factor to its price. Homes are priced according to how sought after the area is, and, as a homebuyer, you should have some expectations around what you will get for your money. For instance, homes in urban areas surrounded by green space, or sought after amenities such as local restaurants and stores and close to transit hubs will often command a higher price tag than homes located in areas that lack these amenities. Do your research on the location so you can understand if the house is fairly priced for its location or if the seller is asking too much. Keep in mind, some locations are under-valued despite having access to great transit options or green space — the key is to really understand the local area to see if you’ve found a good home in a great spot or if the seller is just asking too much based on perceived area value.
3. The home is doing time on the market
Houses that are correctly priced don’t stay on the market for long. Although the term “too long” will be different in every market, typically this can mean a home should sell within a couple of weeks (or a couple of days, if the market is really hot). However, if the home is on the market for a month or more or if the home is listed, terminated (0r cancelled) and re-listed a number of times, this could be a sign that the home is overpriced or has issues.
4. People are interested, but there’s no sale
The location is good, there are plenty of nearby amenities and handy transport links, there appears to be interest but there is no sale, then ask your agent (or the seller’s agent) if there have been any offers. Chances are the seller of an in-demand house will receive and reject offers if the price doesn’t meet their exaggerated expectations.
5. Upgrades to the home haven’t added value
Homeowners often like to renovate and upgrade their houses. The primary aim is for their own enjoyment, but the hope is that the house will fetch a better price when they go to sell. But just because the seller renovated doesn’t mean they will get a dollar for dollar return on the total renovation cost and could just mean the listing is an overpriced house. For instance, the seller may have added a luxurious ensuite spa-like bathroom that cost $50,000 but in doing so they removed the home’s fourth bedroom. In real estate, removing a bedroom is akin to depleting your retirement fund since you’re essentially eliminating relative value from the property. As a result, some renos don’t actually add value to a home and may actually reduce the home’s perceived market value. The key is to assess whether or not the seller has priced the home due to an unrealistic reno they’ve completed. If they have, you may need to wait and let the market’s lack of interest persuade the seller to adjust their expectations.
In general, if a house has had no other offers and it’s been on the market for a few months, it can be worthwhile going in with an offer that’s 10% to 15% lower than the asking price — as long as that discount puts you closer to the market value of comparable homes in the same neighbourhood. Always do your due diligence and get a property inspection to make sure that you’re getting a good deal, rather than taking on a host of problems or an overpriced house.