How to identify overpriced homes: 5 signs to look out for

Overpriced homes are a common concern for buyers and sellers. Buyers want maximum value for their money and a home they can afford. Sellers want to make sure their home is priced competitively to attract buyers and get the best deal.

But given that many factors determine the price of a home, it can be difficult to know when a home is overpriced. It helps to learn the warning signs and indicators that suggest a home has an inflated price tag.

5 signs a house is overpriced

While pricing a home isn’t a science, there are some rules of thumb you can follow to tell if a buyer’s asking price is high. Here’s five red flags to watch out for:

1. Listing prices are out of line with comparable homes

Anyone who’s been house hunting for a few weeks will figure out the general price range for homes in an area. One of the quickest and most reliable ways to determine if a home’s overpriced is to look at comparable listings.

For example, say you’re looking at buying a 10-year-old single-family home that’s 2,500 square feet and has three bedrooms and two bathrooms. When scanning recent comps, you find a home two blocks away that’s roughly the same age and size sold recently for $75,000 less than the home you’re considering. Unless that home has a feature that justifies the price difference, such as a swimming pool or a larger lot, the home you’re looking at may be overpriced.

Looking at comparable listings and pricing trends over time (information that’s also available online) can not only give you a sense of if the property has been up for sale longer than it should be. It can also provide you with a better idea of what sort of discounts that homeowners are typically making for homes that are taking more time to move than the average dwelling.

2. The house has been on the market for a long time

You also want to consider how long a property has been on the market. This information is generally available by looking at websites such as Rocket^®, which provide details on how many days a listing has been active.

If you can’t find this data online, a real estate agent usually can get it for you.

A home that’s been on the market a while without selling may be overpriced, which would explain why no successful offers have been made.

3. The list price doesn’t mirror the state of the home

Make sure to tour the home in person and pay attention to its condition.

Sellers and real estate agents typically post only photos that show the house in a good light. Touring in person allows you to get a better sense of the property’s condition – and a better idea as to whether the home is overpriced given its wear and tear. You may notice problems in areas of the home that weren’t obvious in listing photos.

If you have questions about the relative value of a house given its age and condition, your real estate agent can help answer them.

4. The price doesn’t align with your calculations

When shopping for a home, it helps to calculate the estimated price of the property in advance. An automated valuation model uses existing real estate data to estimate a home’s value. You can easily find an AVM tool online.

You also can do your own calculations by averaging prices from 7 - 10 similar properties in the area. If you run the numbers and find that the price of the home you’re considering buying exceeds the average price of comparable properties in the area, take note. You could be dealing with an overpriced home.

5. The home hasn’t received much attention from buyers

If you’re a prospective purchaser and happen to be working with a local real estate agent, you can also find out how much recent activity and interest that there has been in the property. Should your real estate agent tell know they’ve not been seeing a lot of action surrounding in terms of showings, offers and sales, it could be a warning that the price tag exceeds the home’s actual value.

As a rule of thumb, if a home isn’t generating much interest or bringing in many potential buyers, that suggests you should take a closer look at the price of the home.

Why do sellers overprice their home?

There are many reasons a seller might overprice a home. It’s quite common for a buyer to have to negotiate a lower price when they find a property that catches their eye.

If you’re thinking of making an offer on a home you think is overpriced, be prepared to negotiate with the seller.

A few reasons that sellers sometimes list overpriced homes include:

• The seller is sentimental about the property.
• The home has improvements or features that are unusual for the area. These properties are sometimes described as “white elephants.”
• A recent seller’s market may prompt the property owner to be overly optimistic about how much they can sell for. 
• Likewise, market conditions can change quickly, and the seller has been slow to catch up.
• The seller may be unaware their asking price is high for the current market.
• They may have listed expecting little competition only to have more comparable homes than anticipated come on the market.

How do I bid on a house that is overpriced?

If you’re considering buying an overpriced home, start by researching comparable properties in the area. You’ll then want to calculate an appropriate price and know how much you’re willing to pay. As part of this process, it’s important to strategize a plan for making a competitive offer and even winning the bid.

When you make your offer, you’ll want to have evidence to show to the seller why your offer is fair. That includes any research that you’ve done, comparable home sales, current pricing trends, etc.

It also helps to consider how the seller might receive your offer. For example, it’s important to consider whether the home has been on the market for a long time, which might help your case. If the seller thinks your offer is too low, it might be received poorly.

As you negotiate, keep in mind that there are other sources of leverage to consider than price. For example, a seller who’s been sitting on an unsold property for six months may be more receptive to an offer with an escrow of 30 days than a higher offer with a closing date that’s further out. Similarly, an all-cash offer would be more compelling to a seller than one that requires you to secure a mortgage.

How can I avoid overpricing my house when selling it?

If you’re selling your home, you’ll want to do your homework. A few simple steps and activities can help you avoid overpricing your home.

• Review and consider nearby properties to assess their prices. By considering the prices associated with comparable homes, you’ll get a better sense of what similar houses to yours are selling for in the area.
• Speak with a real estate agent who’s well-versed in the local housing market. They can provide helpful tips on how to price your home appropriately.
• Know your home’s value, realistically. Being aware of it provides a better sense of how much you could potentially sell the property for. It’s especially important to have in mind if there are issues with the dwelling that could affect the pricing on the home.

The bottom line: Overpriced houses can be tough to buy or sell

No matter if you’re shopping for a new home, or looking to sell a piece of property, it’s important to know what properties are selling for. By taking time to research comparable sales, market trends and consulting with real estate professionals, you’ll get a better sense of what overpriced homes look like. Armed with this information, you’ll be far better equipped to purchase a new piece of property or sell your house with less time and effort.

Ready to dive into the world of real estate and find your dream home? Be sure to reach out and start the mortgage process today!