In today’s competitive housing market, it’s easy to get swept up in bidding wars or assume a higher price means higher value.
However, paying more than a home is truly worth can lead to financial strain or limited return on investment. Learning how to identify overpriced homes is key to making a smart purchase decision.
What's in this article?
Below are five clear signs a home may be priced above its market value, along with actionable tips to protect your budget and peace of mind.
1. The price doesn’t match comparable homes
A reliable way to evaluate a home’s value is by comparing it to similar properties nearby, often referred to as “comps” in real estate lingo.
Comps are homes with similar square footage, age, amenities and location that have recently sold.
Red flags to watch for:
- The listing price is significantly higher than recently sold, similar homes
- The price per square foot exceeds the neighborhood average
What to do
Ask your real estate agent to provide a comparative market analysis (CMA).
If the home you’re considering is priced significantly above comparable sales without justifying features (such as a fully remodeled kitchen or a premium lot), it’s likely overpriced.
Additionally, consider reviewing the price trends for the neighborhood over the past 12 months. If nearby homes have appreciated by 5% but the home you’re viewing is listed 15% higher than its last sale price without significant upgrades, that’s a red flag.
Remember, emotional attachment—the seller’s or yours—or renovations done by the seller may not equate to actual market value.
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2. The home has lingered on the market too long
A home sitting on the market longer than the local average often indicates it’s overpriced.
In hot markets, well-priced homes typically attract offers quickly.
Signs of concern:
- The property has been listed for 60 days or more without price reductions
- Multiple listing removals and relistings to “reset” the days on market
What to do
Review the home’s listing history on real estate platforms. Ask your agent why the home hasn’t sold; if it’s due to pricing, you may have room to negotiate.
Some sellers try to generate urgency by relisting a stagnant property with a new MLS number. Be cautious of marketing tactics designed to conceal the length of time a home has been on the market.
Ask your agent for the original listing date and any changes made to the asking price since then.
3. Upgrades don’t justify the price
While custom upgrades can increase a home’s appeal, they don’t always yield dollar-for-dollar returns.
A seller might price the home based on what they invested, not what the market is willing to pay.
Examples of this include:
- Over-personalized features (e.g., home theaters, elaborate landscaping) that don’t appeal broadly
- DIY renovations done without permits or professional oversight
What to do
Assess whether upgrades add practical value. An extra $100,000 for a custom wine cellar may not be reasonable if local buyers prioritize larger yards or updated kitchens.
Look for upgrades that align with the neighborhood’s buyer preferences.
For instance, energy-efficient windows and updated HVAC systems often offer better returns than luxury items, such as imported tiles or themed rooms.
Verify that any renovations were completed to code and have proper documentation. Unpermitted work can lead to future costs.
4. The appraisal comes in lower than the asking price
If you’re financing your home with a mortgage, the lender will order an appraisal to determine the property’s fair market value.
A low appraisal is a clear indicator that the home is overpriced.
What happens if the appraisal is low?
- You may need to renegotiate the price or pay the difference in cash.
- The deal could fall through if the seller refuses to lower the price and you can’t cover the gap.
What to do
Discuss contingencies with your lender and real estate agent before making an offer. Inquire about how a low appraisal would impact your financing or budget.
In some cases, buyers include an appraisal contingency in their contract to protect themselves. If the appraisal falls short, this clause allows them to back out of the deal or renegotiate without incurring any penalties.
Be proactive and have a plan for handling a low appraisal before submitting your offer.
5. The neighborhood doesn’t support the price
Location is a primary driver of home value. Even a beautifully renovated property can be overpriced if it’s in a declining or transitional area.
Clues that a home may be overpriced for the area:
- Comparable homes nearby are significantly cheaper
- Local amenities or school ratings are below average or crime rates are elevated in comparison with the surrounding region
What to do
Research neighborhood trends, upcoming developments and school ratings.
Tools like Realtor.com, Niche.com and local planning websites offer insights into area quality, helping you gauge whether the home fits its price tag.
Look into the neighborhood’s long-term appreciation trends. A higher-priced home in a flat or declining market could be a risky investment if future resale value is a concern.
Consider speaking with local agents who can offer insider perspectives on whether an area is gaining or losing desirability.
Final thoughts: Protecting your investment
Identifying an overpriced home isn’t about lowballing every listing; it’s about understanding value.
With a clear sense of market data and the help of a seasoned real estate agent, you can avoid overpaying and invest with confidence.
At Compass Mortgage, we help you think beyond these numbers. With our distinctive Get Committed® program which offers a fully underwritten loan commitment even before you start shopping, you will have the confidence of a cash buyer and be able to negotiate smarter.
With rate locks available early and fast closings, we make sure you’re positioned for success in any market.
Apply with Compass Mortgage now or call us at (877) 932-8221 to speak with one of our experienced loan officers.