Few would have believed it just a few short years ago, but the housing recovery has come far enough that in an increasing number of popular neighborhoods, buyers must now compete with rival bidders.
Are you a buyer seeking a home in a high-demand market? If so, real estate specialists say that you could be at risk of overpaying.
"Overpaying can be a real danger - especially if you're one of these idiots who gets revved up when facing competition and wants to win no matter what," says Sid Davis, a real estate broker and author of "A Survival Guide for Buying a Home."
Of course, the risk of overpaying is that you won't recoup your investment when you move. That's especially likely if you have a career that requires you to move often.
"I'm not so concerned about people overpaying if they really expect to stay in the house for 10 or 15 years. But if you're not sure how long you'll stay, you've got to be cautious," says Leo Berard, charter president of the National Association of Exclusive Buyer Agents (www.naeba.org).
Do you plan to bid on a particular property that's for sale in a highly desirable neighborhood? Yet do you fear overpaying? If so, then even some basic research on local property values could help put your mind at ease.
Berard says astute buyers narrow their search for information to the exact area where they intend to buy. Data gathered on state or national real estate trends will have little relevance for you as you seek to learn more about values in your target area.
In fact, homes could be worth more in one section of a neighborhood than another, due simply to differences in housing styles.
A strong knowledge of local property values helps you craft an offer at the right price point, thereby reducing your chances of overpaying.
Here are a few tips for buyers intent on getting a fair deal:
-- Seek Internet information as a starting point.
Many websites now offer fast and free estimates on property values and can prove a valuable resource, Berard says. One example he cites is Zillow.com, which lets you search data at either the property or neighborhood level.
"To get started with your research on home values, these sites are a good starting point," he says.
However, statistics from websites are no substitute for guidance from a capable real estate agent with extensive knowledge of the area where you're looking. The right agent may even be able to recite recent sales figures from memory. But Internet information can be a good complement.
"Spend an hour or two one morning on the right websites and you can move up the learning curve while still in your pajamas," Berard says.
-- Ask your real estate agent for help evaluating any home you're considering.
The classic technique used by real estate professionals to estimate a home's value is called a "Comparative Market Analysis." This method is grounded in data on recent sales of similar homes to the one being judged.
"If you're looking in a community with lots of houses that have uniform floor plans, the process is pretty straightforward. But that's not the case where lots of houses are custom-built," Berard says.
In any case, your agent should find at least three completed sales that are roughly comparable. Then she or he should add and subtract value based on differences between the home you like and the others.
Real estate agents are the first to admit that their judgments on property values are based on more than data.
"Unfortunately, coming up with an opinion of value is never totally scientific. Your agent also has to draw on experience," Berard says.
-- Take neighborhood economic trends into account.
During a period when real estate markets are relatively volatile, as they are now, Berard says you need to look beyond closed deals to see where values are heading.
"Housing prices don't rise or fall as quickly as stocks on Wall Street. But over time, economic factors can have a big impact," he says.
In a suburb that's heavily reliant on one employer, such as a defense contractor, a wave of layoffs by the company could reduce property values nearby. On the other hand, values could rise in a community that's benefited from a school boundary change.
-- Request seller "concessions" rather than a lower price.
As a real estate broker, Davis recently helped a middle-aged woman buy a place for her elderly mother. It was an accessible, ranch-style home in a popular neighborhood where a number of properties were on the market at the time.
The statistics gathered by Davis for his client indicated that the two-bedroom condo was fairly priced. They also showed a high level of inventory in the area, which strengthened the purchaser's bargaining power.
Even so, Davis advised the buyer to offer full price for the place, while at the same time seeking a sizeable amount of seller assistance with her closing costs. The sellers readily accepted the deal and the elderly woman was soon able to move in.
Often sellers are much more willing to yield on closing costs than on the price, Davis says. This helps protect their pride.
"It's a cliche in real estate that people like to crow about how much they 'got' for their house. But when they boast, they never mention how many concessions they made," he says.
Ellen James Martin, a former real estate editor at The Baltimore Sun, gives advice for anyone buying, selling or financing a home.