Is It Ever Okay To Overpay For A Home

Dated: February 24 2021

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Listings that receive multiple offers. Houses selling for over the list price or even houses selling for over the appraised value. We have all heard stories like these from buyers in almost every market lately, including MetroCharleston. With under 2,000 active listings on the market and between 400-500 sales per week, inventory in our market has dropped to roughly one month’s supply, an all-time low. For reference, six months of active inventory is considered a balanced market, thereby making current local conditions 10,000 listings short of balance.Given the critical shortage of houses for sale, it is not uncommon to see multiple offer situations with some buyers offering over the listing price for a house. The questions then become: Is it a smart strategic move to pay more than you think you should for a house? Are buyers headed for a fall? Image title

If there are people in the market willing to pay a higher-than-expected price for a home, isn’t that the market value anyway? Is it ever OK to overpay or are you just paying tomorrow’s price today?When someone says they are overpaying for a house, what they really mean is that they are paying a price that is higher than either the listed price or the appraised value. But it does not necessarily mean they are paying too much.Based on the bedrock principles of supply and demand, prices rise when a lot of people are looking for anything that is in short supply. However, when we are talking about housing there is a difference in the price, the value and even the cost of a home. The price of a house is not set or based on an expert opinion. It is, at the end of the day, what a buyer is willing to pay and what a seller is willing to accept. 

The value of a property is based on an appraiser’s, opinion of the property. That appraiser will consider factors like other homes for sale in the area, recent sales, the type of neighborhood, and improvements to the home. The cost of a property is what a home costs you each month,,your payment. For example, if you pay $300,000 for a house with 10% down and a mortgage rate of 4%, your monthly principal and interest payment would be, on a 30-year mortgage, $1,289 per month. However, if you pay $325,000, with everything else being equal except the interest rate which today is closer to 3.25%, your monthly payment would only be $1,272 per month. You paid $25,000 more for the house, but it cost you $17 less per month.If a city, town, area, or neighborhood is really popular because of location, schools, or nearby amenities, then people may indeed pay more than the current value of a house. More important, if that area traditionally holds its value, chances are that the property will continue to appreciate.So, if a house you love becomes available in a place that you have always wanted to live, it might make sense to pay more. Remember, while your home is often your largest single investment, it is also where you live your life, and those factors should take priority over the numbers. Plus, if you have found and want to submit an offer on your forever home, the price you pay today might not matter as much. 

Real estate tends to appreciate over time, so long-term investors can be more comfortable paying a premium initially if it means getting the right place.While the median sales price in Metro Charleston went up by 14% in 2020, historic long-term appreciation, through the ups and the downs in the market, is 3%. Using that average, the $300,000 house you buy today should be worth $309,000 next year. So, are you over-paying, or maybe just paying tomorrow’s price today and getting the home for a lower monthly cost?

Would you like to hear more?  Call or text me, Blair Halford, at (843) 276-6587.

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Blair Halford

Blair Halford is a Charleston native, and having grown up here and attended Porter-Gaud and the College of Charleston he has appreciation for the Lowcountry lifestyle. His extensive knowledge of the a....

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