5 Ways to Reduce the Risk of Over-Paying

Buyers tend to have three primary fears when searching for a home:

They don’t want to miss anything.

They don’t want to over-pay.

And they don’t want to buy a house with something critically wrong with it.

All completely reasonable concerns. Today I’m going to talk about the middle one — the fear of over-paying — and what factors will significantly mitigate that.

Prices in most markets — certainly in the Bellingham real estate market — have gone up measurably in the past 5 years. The average per-week appreciation of single family homes in that time has been $771.00… or just over $200,000 total.

That’s great if you bought then. It makes it hard for many buyers now, with the average Bellingham price over the past 30 days — the SLOW time of year — cresting $603,000!!!

In the spirit of reducing your over-paying fears when you’re about to pull the trigger on a Bellingham home, keep these 5 things in mind…

1. How Long Will You Stay?

Or, more accurately, how long will you keep the house? The longer you own a home in Bellingham, the more time it has to appreciate and the less your risk of losing money when you sell. It costs money to sell — historically about 8% all in, with commissions, excise tax, title insurance and escrow fees. In recent years that amount of appreciation has occurred in 6 or 7 months time… but we don’t advise counting on that short time frame. Really, we tell our clients that a 5-year hold is a good target. If you can foresee keeping the next house you buy for 5 years or more, that will significantly reduce your risk of paying a premium price now.

2. Does It Have Upside?

This means, can the property be materially improved during your ownership in ways that will increase its value? Is it somewhat dated and in need of an update? Can an extra bed and bath be easily added? Can the lot support an ADU — accessory dwelling unit? Can a basement be finished? There are 100 ways to improve or expand a property to push it into a new price category, and it’s a valuable skill to be able to identify those ways while you’re looking at it. If you find yourself falling in love with a house that is, for example, super small with no room to expand, on a lot that has no more room to grow (or put an ADU), in absolutely updated, cherry condition inside and out with full updates already made, and on the higher end of the price spectrum for its setting… that’s one that will be difficult to infuse more value into, other than just waiting for the market to further appreciate.

3. Is The Neighborhood a Market Favorite?

If you’ve been watching the market for a meaningful amount of time, you will have seen areas where relatively few homes actually go up for sale, when they do they sell quickly, and for eyebrow raising prices per foot. In Bellingham, this would be the Core Neighborhoods, as one example.  There is consistent, strong demand for homes in the Core ‘Hoods, so buying there is a safer bet. Qualities like walk-ability, proximity to parks, brewpubs and coffee shops, the option to forego owning a car… those are becoming more popular in  society in general, so buying in a location with those qualities is a solid bet.

4. How Does This Home Compare To Neighbors’ Homes?

For any given neighborhood or even a particular street, there are homes on the extreme end of size, quality, and price. The rule is simple: You don’t necessarily want to buy THE nicest, most expensive house in the entire neighborhood — not if mitigating risk of over-paying is your goal. Neighborhoods have a “range” their homes fit into, typically. To be safe, you buy near the middle of that range. To increase the odds of making money, you buy at the more humble, less-expensive end of that range. For example, if 90% of houses in a given neighborhood are selling  in the $400K to $600K range, you may be taking a risk buying that one unique place that’s listed at $950K and is twice the size of anything else in the surrounding half-mile radius. On the flip side, if you find something for $300K with room to expand and update… that could be a money-making score if you approach it right during your ownership.

5. Don’t Get Caught Up In The “Bidding War” Frenzy

There are a LOT of  multiple offer sales in the Bellingham market these days. That means a new listing goes Active on the MLS, buyers crawl all over it for a few days as the frenzy builds. Then, as offers are written, most or all of them use an “escalation addendum” to make increasingly higher bids on the house, beating the next highest by a stated increment, hoping their maximum amount is enough to win the day. The escalation addendum is a great tool, meant to help avoid over-paying by only beating competing offers by a relatively small amount (usually a few thousand dollars). But it can be easy to get caught up in the frenzy of competition for the house, and writing in a max offer price that is well above what the data supports. The best strategy to avoid over-paying in these “auction” style sales is to objectively pick a price that you’ll feel good about if you get it, and also if someone else is willing to go above it. Put differently, offer YOUR high price, not someone else’s.

In Summary

Every buyer, every house, and every sale is unique. The tips above are general rules meant to keep in mind during your buying journey — they’re not hard and fast in all situations. The ABSOLUTE best overall strategy is to team up with an experienced, highly-reviewed, widely-respected Realtor who can help guide and translate throughout the complete buying and owning journey. That’s what we do here at Brandon Nelson Partners.