Where to Draw the Line as a Buyer in a Seller's Market

A competitive real estate market can cause exaggerated sale prices and a very competitive bidding environment for a great looking house in the right location.

 If you’re in the market to buy a home right now, I can see you rolling your eyes and hear you exhaling in despair – you know what I’m talking about. These are the homes you’ve seen, loved, and made an offer on, only to be outbid by someone who was willing to pay even more.

The other thing that an incredibly hot market can do is start to blur the lines on value.  

Here’s an example: In a subdivision located in the town where I live, there are several different style homes.  To briefly summarize the styles, from smallest to largest, here are the quick notes on what is located there:

  • Townhouses with about 1,250 square feet and no basement
  • Townhouses with about 1,250 square feet and basements (when finished, they may have 300 square feet below grade)
  • Twin houses with anywhere from 1,450 to 1,750 square feet with garages, but no basement
  • Twin houses with anywhere from 1,450 to 1,750 square feet with garages and with basements (when finished, they may have 350 square feet below grade)

Here’s the thing: in most markets, the townhouses without basements sell for a little less than the ones with basements, and the end townhouses also sell at a bit of a premium.  Twins without garages sell for more than any of the townhouses, and the twins with garages and basements sell for the highest numbers. Typically, the range in value from top to bottom was about $40,000.  

But not in this market.  Right now, the lines are blurred and they’re basically selling within several thousand dollars of one another.

So, what’s the moral of this story?  There are two insights I can give you: 

  1. If you’re buying a home this year, make sure you don’t drastically overpay for it just because other buyers are willing to.  In other words, don’t get caught up in the heat of the bid. If the home you’re considering is located in a neighborhood like I’m describing above, look back past the prior years’ sales to see how that market was performing two and three years ago.  See what range of value there used to be between the smallest and the largest, the most updated and the most outdated.  If you’re buying the smallest or the most outdated now, that’s okay, just be sure you’re not overpaying for it.
  2. The second insight I can offer:  If you own a home in this type of neighborhood, especially if it’s one of the smaller properties, this is the year for you to get the magic number.  That’s right….the number you won’t see again for a long time.  The kind of money that, when you tell someone about it two or three years from now, they probably won’t believe you.    

If you have the smallest home in a neighborhood that seems to have very little parity in value right now, where everything is basically selling for similar numbers, and you were thinking about moving in the near future anyway, capitalize on this market now.  Someone will pay too much – it just won’t be any of the buyers in the market right now that read this article.  

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