When buying a Windsor Ontario home, there are some buyers, particularly first time buyers, who will overpay for a home if they let their emotions get the best of them. As a real estate agent for over 25 years, I have seen clients find a home they feel they can’t live without and get all caught up in the excitement of bidding for fear they will lose the home of their dreams. This is where a good agent will say “Whoa!” because the last thing we want to see is a client that goes too far off their budget. It’s not a good way to start on the road to being a homeowner. The stress that may come later is simply not worth it.
In a nutshell, here is what can happen if you overpay for a home:
- A buyer will need a larger down payment.
- Monthly house payments are larger and thousands of dollars in additional interest will be paid.
- Closing costs will be higher.
- Equity will take longer to build.
For some buyers, the above does not pose a problem, but for others, it can cause sleepless nights and a huge case of buyer’s remorse. So how do you avoid overpaying for a home?
1. Pay close attention to comps – First of all, always consider the home’s location, condition, amenities and size when preparing an offer. And always have your agent give you the nearby comps. This simply means you need to see what similar homes in the area SOLD for, not what they were listed for. If you ignore comps, then you are basing your offer on your emotions rather than common sense. When this happens, you overpay.
2. Remember your budget – Buyers who do not consider their budget, or walk into a home without any idea what they can even afford, will almost always overpay for a home. Sticking to a budget is never more important than when buying a home because it can literally haunt you and throw you off track financially for years. Remember, it’s not just the mortgage payments you will need to make monthly, but insurance, utilities and other costs in order to maintain the home. Smart buyers always have a game plan and getting pre-approved for a mortgage is part of that plan. And don’t feel compelled to start at the top of your budget, but rather, look at less expensive homes and then work your way up should you not find anything in the lower price range. It’s a lot easier to find homes moving up, then starting at the higher end of the budget and moving down.
3. Remember appraisal – It doesn’t matter what you offer on a property, nor what the seller accepts, if the appraisal comes in lower, banks won’t grant a loan for more than what the property is worth. Those days are long gone when banks signed a blank check. A buyer has a few options if an appraisal comes in low:
- come up with the difference in cash
- seller can lower the price
- buyer can walk away
4. Don’t view bidding for a home as a game – Let’s look at it this way: when you play a game, there needs to be a winner, and usually, the buyer wants to win when they see a terrific house, and it means bidding and bidding until they have surpassed their budget. Keep in mind the seller already wins, because, in a bidding war, they are getting everything they want and also realize that other offers are coming in, so there is little to zero risk for them. When a buyer exceeds their budget by increasing their offer, it’s often because they are caught up in the thrill and excitement. But remember, there is almost always a letdown. I always tell my clients if a bidding war is forthcoming: make your first offer, your best offer and if it’s not accepted, then walk away if you know you can’t afford anymore. Believe me, there are other homes available.
There is never any good scenario when a buyer exceeds their budget simply because they feel they can’t live without a home. If money is an issue, and it almost always is, have a firm game plan, leave your emotions at the front door, and work with a real estate agent you can trust and who will keep your best interests in mind.