How to avoid overpaying for a home

Prices fluctuating in many cities

By ANNA BAHNEY CNN BUSINESS
Tim Boyle/Getty Images

(CNN) - No buyer wants to pay too much for a house.

But as real estate markets across the country slow, sellers may be reluctant to accept that they've missed the opportunity to get top dollar for their home.

When the market is pulling back, finding the true market value — what the buyer is willing to pay and the seller is willing to take — can be a moving target.

In Colorado Springs, Colorado, for example, prices have fallen in 10% of listings in the past week, according to Jeff Johnson, a real estate agent and owner of the Johnson Team, Keller Williams Premier Realty there. He says a similar number have been reduced each week for the past four weeks.

"It is a tough situation right now," Johnson says. "The sellers still think we're in the crazy market of spring and summer of last year."

It wasn't that long ago, he says, that a house would get five or six offers within hours and you had to bid above the price of comparable properties or you were not getting a house. "But now we've definitely seen a plateau."

While, ultimately, sellers may be forced to knock down the price, buyers should know when a property is overpriced and be equipped with strategies to avoid overpaying.

Shadow your local market

Johnson says long before bidding on a property or even going to look at houses, potential buyers should watch the market not only in the city where they're buying, but the specific neighborhood.

"Shadow the market for at least a couple of months," says Johnson. "You need to see what is selling and for how much."

With the growing skepticism on buyers' parts about what is a fair price, Dana Bull, a real estate agent with Sagan Harborside Sotheby's International Realty in Boston, says finding fair market value is difficult.

"People have a misconception of what market value means," she says. "I could think that something is overpriced. Another buyer could say: this is exactly what I want and I'm willing to pay a premium for this."

But a sale results where the buyer and seller meet. And it might take a property sitting on the market or dropping price to find that point. Watch for these moves in your target market.

"The longer it stays on the market, the more likely it is to be incorrectly priced," says Theo Adamstein, sales associate at TTR Sotheby's International Realty. "Days on the market can be a killer for a seller. Buyers should take note if there has been a price drop. If it sits too long like that, buyers think no one wants it."

Question comparable properties

While there's logic and data that goes into pricing a home, Bull says it's also an art.

When considering a property, buyers must compare prices of other similar properties, or "comps."

Size up properties in your area that have sold within the past three to six months, says Bull. "There are so many different things to compare: square footage, the size of the lot, number of bedrooms and bathrooms, parking."

But, then, she says, comes the art: the condition of the home and the timing of the listing.

While there may be improvements that make one home more valuable than another, some sellers may have over-improved their home or may believe they are in a market frenzy that no longer exists.

"They'll think 'We renovated our kitchen 8 years ago and we want to recoup that $50,000,' but it doesn't work that way," says Bull.

Make a low offer more attractive

"Sellers over the past five years have gotten very used to a strong sellers' market, resulting in multiple offers, well over list price," says Adamstein. "There is still an expectation that sellers will get a certain price. Right now, sellers need to be a little bit more realistic."

While some agents advise against making low-ball offers on an overpriced property, a house that's been sitting on the market can offer an opportunity to get a deal.

"Any offer is better than no offer," says Bull. "Give the seller the chance to make the decision."

When Adamstein's clients opt to make a low offer on a property, he advises them to make all other parts of their purchasing package as appealing as possible.

"Are you offering a 30 day closing? With a lender they've heard of and your earnest money is strong?" he says. "That may get sellers to think carefully about your lower than list price offer."

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