When it makes sense to overpay for house

No one likes to overpay for a home, particularly in a soft market. Yet, even in the current beleaguered housing market, there are pockets of strength. In these areas, buyers can find themselves in competition. Multiple offers can drive the price up, but not always.

Most buyers today are looking for bargains. Foreclosure listings, particularly at the low end of the market, are selling to investors and first-time buyers. As home prices dropped, affordability improved, which made it possible for first-timers to make the move from renting to buying.

However, some of the least expensive foreclosure properties on the market today aren't in the best condition. Even though the price might be low, a foreclosure is not a good deal if you have to spend more than market value to purchase the property and cure the deferred maintenance.

The listings that are the most salable are those that are in desirable locations, are priced right for the market and are in good condition. It's hard to negotiate a below-market price on one of these properties because there is so much demand for the best house at the best price.

In many prime markets, there is a low inventory of these high-demand properties because it's commonly thought that now is not the best time to sell. So, when a prime property comes on the market, it's not uncommon to find multiple buyers lining up to make offers.

Recently, there was a listing in Oakland, Calif., on a large piece of property with a spectacular setting, and within walking distance to Montclair Village. Buyers tend to pay a premium for the convenience of being able to walk to town. This listing attracted three offers, even though it was listed on the steep side. It sold for a little more than the asking price.

HOUSE HUNTING TIP: It may seem counterintuitive to pay over the asking price in a buyer's market. However, if you're looking for a type of property that's hard to find, and you've looked for long enough to know that the property is what you want for your long-term enjoyment, it might make sense to pay a little more.

There is some satisfaction in buying a house that is in high demand. If you keep the property in good condition and price it right for the market when you sell, you might receive multiple offers. There is always a demand for the best houses.

The quality of life a home provides you is also a relevant consideration. It's hard to say how much this is worth. For this reason, you shouldn't pay a lot more than comparable sales support.

And you shouldn't buy if you don't plan to own the home for a long period of time. It would be a mistake to overpay for a home and then have to sell it the next year. Even if the market was stable, you wouldn't break even due to the costs involved in selling.

Be aware that, in the current tight financial market, it could be difficult for a property to appraise for more than the list price. However, appraisers do give consideration to multiple offers in setting an appraisal value.

Unless you're paying all cash, your lender might lower your mortgage amount if the house doesn't appraise for the purchase price. In this case, you could try to renegotiate the purchase price with the seller. If that doesn't work, and your contract included an appraisal contingency, you may be able to withdraw from the contract without penalty.

THE CLOSING: Or, you can increase your down payment to the amount required by the lender and proceed with the purchase.

Dian Hymer is a nationally syndicated real estate columnist and author of "House Hunting, The Take-Along Workbook for Home Buyers" and "Starting Out, The Complete Home Buyer's Guide," Chronicle Books.

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