Many first time home buyers find themselves paying more for a house than it’s worth. There are several reasons for this, here are some of the biggest:
NOT DOING RESEARCH
If you are buying a home in an area that you’re not familiar with, you need to hire an agent who is. Many people find themselves overpaying because they don’t know the value of the surrounding properties. You don't want to pay too much and end up in a less than desirable area. If the agent doesn't seem to be able to provide important details, you should probably look for a new one.
TOO MANY COOKS
If you are the sole decision maker in the household, deciding what you want in a home is easy. However, when there are several different opinions in play and the list of needs/wants gets more complex. This will affect the price of the home in the end. It can also be difficult if the people buying the home aren't on the same page. Sit down with your partner before hand and agree on a list. Both sides will need to make compromises in order to keep your budget in tact.
Getting into a bidding war may result in overpaying. It’s easy to get swept up in the moment and forget about your budget if you really, really want a particular home. Open Houses especially have a way of creating a competitive environment when you see first hand how many people are interested in the home.
Losing too many bidding wars may also lead to overpaying because a buyer just becomes desperate. Pace yourself and stick to your budget. It's better to spend a few extra months searching then find yourself in over your head.
Your offer has been accepted and now comes the appraisal. But what happens if the house is appraised for less than your offer? In some cases, you may have to meet the seller half way and front the extra yourself. Most lenders will not loan you more than the house is worth. It’s a good idea in your original offer to include an appraisal contingency. This means if the house’s value isn’t within a certain percentage of your offer (usually 5% to 10%) you may renegotiate, if necessary
LOW-BALL OFFER FAILS
Unless the house has been on the market for months without interest, sellers usually won't take low ball offers seriously. This can then cause the seller to not take you seriously on additional offers unless you pay substantially more. Work with your agent to craft reasonable offers both parties will be happy with.