Don’t shop for a home on price alone

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Today’s buyer has a one-track mind when it comes to shopping for a home: price, but it might lead him in the wrong direction.

Home shoppers’ overriding goal, according to real estate agents, is to scoop up a bargain.

“There are certain expectations now,” says Raylene Lewis, an agent with Century 21 Beal in College Station, Texas. “People think, ‘In this economy, I should be able to get X home at Y price.'”

There’s nothing wrong with a bargain, except that experts agree that obsessively focusing on price can divert you from other key considerations, like whether a home suits your particular needs.

Here, advice on putting prices in perspective:

Beware the seller’s number

William Poundstone, author of the recent book “Priceless,” has a radical suggestion: Don’t enter a home knowing the list price. Instead, ask an agent to show you properties within your affordability range. Judge the homes on their respective merits, and then ask the agent for help determining a reasonable purchase price.

However, Poundstone acknowledges this approach isn’t realistic, saying, “It’s hard to disregard the list price.”

But, he would like home shoppers to at least be aware that a home price can play tricks on their minds, influencing how they judge the worth of a property.

In his book, Poundstone outlines a study whereby subjects estimated a higher reasonable purchase figure for a home when they were given a higher listing price. Correspondingly, subjects given a lower listing figure on the same property pegged their reasonable bid lower.

Right now, listing figures can be particularly confusing, says John Sullivan, past president of the National Association of Exclusive Buyer Agents.

For one thing, some “vanity” listing numbers are too high, because agents are assuaging sellers’ insistence that their home is worth a certain amount, says Sullivan.

On the other hand, sometimes list prices are realistic, something buyers have a hard time accepting, notes Ellen Klein, of Century 21 Christel Rockaway, N.J. “Buyers today feel that sellers should give their house away,” she says.

The takeaway: A higher home price tag doesn’t translate into a “better” home. Judge properties on what suits your needs, advises Poundstone. Then, determine a fair purchase figure through a vigorous analysis of the most recent sales and sales contract prices on similar properties in the area.

Measure your response to markdowns

If you’re currently home shopping, you may recognize yourself in what agents say is a common scenario: You have had a particular “dream,” say a three-bedroom colonial style home. Then, you hear about a five-bedroom contemporary that’s just reduced to a distressed sale price … and you just have to take a look.

But many short sales, foreclosures and other distressed sale properties are in such a state of disrepair that they’re not suitable for ordinary buyers, says Sullivan.

Not only that, but the advertised low listings on these properties may give buyers the idea that bargains abound that are steeper then they really are, says Chris Heller, an agent with Keller Williams in San Diego.

“The list price on a short sale might not have any reflection on what the final purchase (amount) will be,” Heller says. “A home might be listed at $350,000, and then the bank (holding the loan on the home) decides it needs $380,000.”

The takeaway: Beware of being too focused on the idea that there are fantastic bargains lurking out there you are somehow missing. Such a focus can lead buyers to underbid on homes that seem expensive in comparison. “Then they miss out on the home they really want,” says Lewis.

Moreover, for that buyer with the “dream” home, he could end up with a purchase they’ll later deeply regret, says Washington University psychologist Leonard Green. If you want a cozy colonial, for instance, you’d end up wondering why you’re in a spacious split-level.

Limit your distractions

The average time buyers look for a home stretched to 10 weeks by last year, up from eight weeks a few years earlier, according to the National Association of Realtors.

“Buyers used to look for homes within a certain town that they decided they wanted,” says Lynn Fairfield, an agent with Re/Max in Libertyville, Ill. “Now they’re looking everywhere, looking for the best price.”

The takeaway: As long as a home is affordable, subjective factors, like living in a town with good amenities for families and a convenient location, are as important as analytical factors, like price, says Poundstone. It’s just that we tend to obsess on the latter because it’s easier to mentally latch on to the analytical.

So, keep in mind the more “squishy” but important things you’ll live with when you do buy a home, and use them to define priorities. “You need reasonable limits,” says Poundstone. “We pay too much attention to price.”