Bob Northern & Company
12540 Patterson Ave
Richmond, VA 23238
Tel: 804-708-9463 • Fax: 804-708-9467
Buying a Home: Step-By-Step
How can I avoid overpaying for my home?

How would you like to find out what homes have sold for in the
neighborhood you are considering in the last 12 months?

I intend to make a large down payment on my house. How can I protect myself from unintentionally overpaying for my home?

Do you realize you could overpay tens of thousands of dollars for your new home and not even know it? Let me show you how it happens:

Mr. and Mrs. Jones want to retire in Richmond after having lived and worked in "Jersey" for the last 30 years. They want to retire to a warmer climate and a cheaper cost of living, not to mention the real estate tax savings!

After having been gone for 30 years. They've lived in Jersey for a long time and are used to paying an exorbitant amount of money to buy a home. When they came to Richmond, they found a home that fit them perfectly "for only $150,000!". They walked into an open house at 2:00 on a Sunday afternoon. The same home in "Jersey" would cost them $250,000. They immediately signed a contract with the listing agent who was holding the open house and closed in thirty days after signing the contract.

They paid $60,000 down and got a loan for $90,000 at 6.5%. Boy did they get a good deal! At least they think they did! They got a loan from a Richmond Lender. The house was appraised by the bank, so they were confident all was well.

What they didn't realize was that the home was only worth $120,000, not the $150,000 they paid!
When their new Richmond friends thanked the Jones' for raising their property values so much by paying so much for their home, the Jones' responded that the bank appraised the house and they didn't overpay! They pointed to the fact that the bank gave them a loan of $90,000!

What they didn't understand is that all the bank cares about is that the loan the bank gave Mr. and Mrs. Jones did not exceed 80% of the house's appraised value, not sales price!

Since the home was worth and appraised for $120,000 the maximum amount of money the bank was willing to lend to Mr. and Mrs. Jones was 80% of $120,000 which was $96,000! The extra down payment the Jones' paid caused them to grossly overpay for their new home!

The best way to protect yourself from a scenario like this is to put a clause in the contract that says that "this home is to appraise at least for the contract price, or the purchaser has the right to void the contract".

Something this simple would have saved Mr. and Mrs. Jones $30,000!