Picture this scenario: you’ve been searching through homes available online, working with a real estate agent to view homes in person, and you’ve found the property that fits all of your criteria, including your budget.
The bad news? A handful of other people have also decided that it’s their dream home.
You’re now faced with a dilemma that affects many first-time buyers: should you offer over asking price to beat those other buyers out?
In some cases, offering more than the asking price can be a safe and secure move that helps you attract a seller’s attention. In other cases, you could end up in hot water when it comes to carrying your mortgage. These are some of the circumstances in which offering more than the listing price will be beneficial.
When you settle in your new home, you want it to be under the right circumstances.
You’re Shopping A Hot Market
In a strong market, homes don’t stick around very long. Inventory is typically more limited, and so there is more competition for each property; as of January 2018, over 4.7 million existing single-family homes were sold, a drop from previous months in most part due to a drop in inventory. In these situations, it’s common to have properties consistently sell over listing price, as supply and demand will ultimately affect sales prices. If you are finding a lot of competition at open houses, offering more could put you ahead of the pack.
The Price Is Already Discounted
Say you’re looking at a property in a busy real estate market that is listed at a lower price than comparable homes nearby. If you make a low-ball offer, the seller is likely to have better options to consider, but if you offer listing price or above, you’re likely to catch their eye. In this case, you’re already getting a deal on that property even if you end up paying over asking price.
You Want To Guarantee Other Parts Of The Contract
When there is competitive bidding on a property, buyers may concede certain contingencies or other protections to make the deal easier for sellers. However, when you make these concessions, you are only sacrificing your protection during the rest of the buying process and beyond. If you’d like the ability to negotiate covering repairs or paying for certain closing costs, offering more money upfront could help.
It’s your dream home, but how many others feel the same way?
What To Ask Yourself Before Making A Higher Offer
Ultimately, you should only offer above listing price if it benefits you. Before you submit any offers, figure out if you’re ready for the higher cost with these questions:
- Are you ready to pay more? You made a budget when house hunting, so how does this offer fit into that? Are you disregarding your budget because you feel you need to have a certain home? You could end up in financial trouble down the road with a higher mortgage than you’ve budgeted for. It’s crucial to work with a buyer’s agent who can advise you on what market activity is currently like and help you stick with your intended budget.
- Are you willing you to lose out on the home for a few thousand dollars? If the size, location, quality, and price of the home you’re looking at are right, will you walk away from it over what could be a few thousand dollars? Know your local market in-and-out so you know when you’re walking away from a reasonable deal.
- Will the home appraise? When you’re getting financing, the property must be appraised to help the lender determine loan value. If you offer more than listing price and the property appraises at the original price, you may not be able to get a loan to cover the additional amount. On the other hand, a motivated seller will know that anyone who needs a home mortgage loan won’t be able to pay that higher price, so they may be willing to renegotiate with you.
When it comes to buying your first home, make sure you are protecting yourself in the long-term by finding the best home mortgage rates for your financial situation. Answer a few questions here, and a home lending expert will contact you with options that work for you.