Paying More Than Asking Price For Your Home
How much is too much?
You’ve found the perfect home. It’s perfectly priced (and your agent agrees whole-heartedly). There’s one problem. There’s an offer on the table already. Welcome to the fun world of guessing what the other offer looks like. It’s an age old real estate tradition rooted in three things: wanting to have a crystal ball, wanting to buy the home, and being willing to pay more for the home or make a better offer.
You’re faced with the prospect of making that better offer in order to “win” the right to buy the home. But how much more should you go above asking price?
Think before you pay more.
The first thing you and your agent should look at is the offer itself. Are you asking for too many little things? Before even considering changing the price of the home you may want to consider restructuring the offer. Things like title insurance, residential service contracts (home warranties), surveys – these all take away from the seller’s bottom line if you’re requesting they pay for them. Emotional items can add into that as well. Remember the statue in the back yard you asked for in your offer? The seller might have some emotional attachments to it, so before you push for the lion statue by the pool (knowing there’s another offer), perhaps you might want to rethink it.
Sometimes money is all you have.
Of course, if you’ve written a great offer and the only thing you can change is what your willing to pay for the home, then it’s time to figure out what a) the home is worth and b) what it’s worth to you. Hopefully, in making an offer you’ve already gone through these steps. Your agent should have discussed the comparable sales with you, so you should have a good idea what the home’s current market value is. Now it’s time to think about what it’s worth to you. No matter what the market data suggests, a home is only worth as much as you’re willing to pay for it. You can buy a shack for a million dollars or a mansion for mere pennies – if you find value in the purchase, then go for it (of course, appraisals will affect your ability to overpay, especially in the current market).
The listing agent does not have to tell you anything about the other offers on the table, so at this point, it becomes a psychological experiment. Do you go high? Do you creep up just a few hundred dollars? Do you stand firm? It’s hard to say and every case is different. Your agent should ask the listing agent what the others have offered, but usually the other agent will remain mum about prices (and they should – it’s their duty to get the most for their seller). If you want this house, it’s possible you’re going to have to pay more than asking price.
The main factor you should look at is the home’s price in relationship to the current market’s comparables (houses of similar size and value in the neighborhood, sold in the last few months). If the asking price on the home is lower than most, you may want to consider pushing up and above asking price. If the home is well priced and in line with the market, you’re faced with a tough decision of whether you want to pay more or not.
Recent trends.
The trends I’m seeing with sellers’ asking prices is that they are still pricing them slightly higher than they hope to net, as they know buyers are being more frugal with their offers. I still suggest my sellers price their homes on target – this saves the haggling and back and forth and will get the home sold faster and for maximum value (the more you overprice it, the more the trend is to get less than you could have received). If a home is well priced when my clients look at it, we talk it out and more often than not, we look towards full price. Everyone wants a bargain, but if the home is already priced right, there’s not as much wiggle room.
Trends with foreclosures, short sales, and HUD homes has been the opposite of more traditional sales. I’ve seen ridiculously low asking prices that are designed to generate multiple offers. Multiple offer situations are great when selling your home – you are then playing each buyer off of the others. Cash has also been king. Banks love cash offers as they are simple to close and although you may have made an offer significantly higher than the asking price, a cash buyer will typically be more favored, even at a lower price. Shooting below asking price on these distressed properties has a tendency to leave you empty handed and back out on the streets, looking for a different home.
photo courtesy of Refracted Moments™
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Comments
Hi Matt –
It’s always tough for a buyer to figure out what to offer when they know it’s a multi-offer situation.
After running comps and going over the pros and cons of why they like it, I usually advise them to come up with the number that they would still feel good about buying it, but would not kick themselves if they lost it by $1.
Vicki – In a similar fashion I ask them to run the scenario of what happens if they get beat out and don’t get this house. If I detect any sort of sadness on their part, I move to get them thinking harder about it. If I feel like they’re right on the edge of either side, I’ll often call the agent to see if we can get a few hours extra.
It’s a terrible feeling when you lose a house to someone else. No one likes it, even when they are okay with not getting the house.
.-= rerockstar´s last blog ..Building A New Home In San Antonio? Consider this… =-.
This is also where having a professional manner and asking questions of the listing agent can really help when deciding how to tweek an offer.
“So my folks are non-contingent…”
“Really, their loan approval now just depends on the appraisal and it looks like you priced it well” flattery helps start a conversation.
“I can send it over as a pdf, is that ok?”
Be organized because organized people like to work with organized people, and the other offer may have been written on the hood of a car! There are too many “x- factors” that make one offer rise to the top to discuss since they are trade secrets (you haven’t taken that class?)
.-= Doug Francis´s last blog ..The real estate market catches a hint of Spring 2010 =-.
With foreclosures cash is king as you say in your post. With non foreclosures I would look for ways to make the offer stronger outside of raising the price. Things like… letting the seller determine the closing date, shorten the contingency times, providing a pre-approval letter just to name a few.
Rock star post as always.
Rodeny – As with any older post, when I receive a comment I go back and read the post to see what my thoughts were at that given moment. I re-read this one and I have to say, my thoughts on recent trends still stand firm.
Here in San Antonio, the pre-approval is more or less a requirement. I haven’t seen anyone who accepts an offer without one.
All of this is true and the methods of buyer beware is as true today as it was in the past. Ensure you remain true to your top price, ensure you do your homework and consider why you are buying. If it is a lifestyle choice and you plan to remain in that home for at least 10 years, then the considerations are different if you are buying as an investment. Of course, that statue may be the difference between exceeding your budget and maintaining your original goal. Location, location, location.
Wow! In my native country, Australia, this would possible be called gazumped and is illegal if another offer has been made and accepted. Is this similar in the USA? I am not saying this article is suggestion gazump in this situation, however, if it were, is it illegal?
Mathieu – Gazump? I love that word – never heard it before. If an offer is made and accepted and than a higher offer came in, you could cancel the prior contract in order to accept the better offer. You could place it in “back-up contract” status – in other words, you can accept it and it will become the primary contract if the first one falls through, but you would be liable to the first buyer if you canceled the sale.
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