How Much Over Asking Price Should I Offer On A House In a Competitive Market?

How Much Ovrer Asking Price Should I Offer On A House In A Competitive Market


People would have laughed at you if you had told them a decade ago that they could study anything they wanted for free. The internet has made it easier than ever to learn just about anything you want. So with all this content and courses available, how did you know which ones to learn from and which ones actually work?


Luckily for you, CORE Member, we’re going to guide you on how much over asking price you should offer on a house in a competitive market. Remember, that while the first step is completing any of these amazing courses, the second and possibly more important step is taking action even if it’s an imperfect action.

For many purchasers, paying more than list price for a home goes against the grain—or, more particularly, the notion that real estate deals should always be negotiated. Even so, there are situations when spending more than the published price is justified.

When you’re in a bidding battle, experts recommend giving at least 1% to 3% more than the asking price. In fact, the average home sold for only 1.3 percent more than its advertised price in early 2022.

In a hot market, you might be able to get away with a lot more. But how much is excessive?

Every buyer will receive a different response. Setting your budget and expectations ahead of time is the greatest way to know how much you can afford to provide — and when to say no. Negotiations will be much easier as a result of this.

How Much Over Asking Price Should I Offer On A House In A Competitive Market Housing PricesFollowing the pandemic, the housing market has reached new highs, with little possibility of collapsing. According to Redfin data, more than half of the houses on the market are selling for more than their asking price. Multiple offers are common in today’s hyper-competitive market, with properties selling practically as soon as the for sale sign goes up and bidders paying hundreds of dollars above the asking price. To put it another way, people are trying all possible to make their offers stand out in order to secure the home of their dreams.

“It’s not uncommon for buyers to submit offers for $50,000 to $100,000 over asking price, waive appraisal contingencies, and pay $30,000 to $100,000 over appraisal in this market,” says Stephanie Williamson, a real estate broker. However, this may not be the best long-term investment for your money. “In my perspective, if you don’t run your numbers, this is a prescription for disaster,” Williamson says, adding that “in the event the market corrects or there is a downturn, it offers a risk for the owner to get upside down in the loan.” While paying one to three percent over list price is usual, Williamson recommends consulting with your realtor and lender to come up with a number that is right for you, so you don’t make an offer that you can’t afford.

Despite the fact that analysts believe the market will not crash this year, there are no certainties regarding what will happen in the future. Because buying a home is such a large, long-term financial investment, it’s critical to approach it as such and carefully weigh all of your alternatives when deciding how much to offer—especially if you’re a first-time homebuyer.

Here are some professional guidelines to keep in mind when making an offer on a home and determining how much beyond the asking price you should go.

Number 1: See what other houses in the neighborhood are selling for

Make sure you do your research and get to know the area you’ll be living in. Calculating how much other properties in the area are selling for is a smart approach to figure out how much over the asking price is reasonable.

Always ask your agent for a comparative market analysis (or CMA) before making an offer. While these in-depth reports and statistics can be difficult to peruse, your real estate agent should be able to make sense of them to come up with a number that is appropriate for the market— and your budget.

Number 2: Rely on your agent, and ask them to look into what extra terms can help your offer stand out

Make sure you have a good agent. Obviously, your agent plays a vital role in the home-buying process, but they’re especially crucial when it’s time to submit an offer. You’ll need someone who is familiar with the area and will speak for your interests as a buyer, negotiating with the seller on your behalf.

How Much Over Asking Price Should I Offer On A House In A Competitive Market Price Discussion with Agent“Choosing an agent who is both proactive and trustworthy will save you money in the long run,” Williamson adds. Your agent will conduct market research with you and determine the best method to make your offer stand out, particularly if you are involved in a bidding battle.

It’s a good idea for a buyer to understand which parameters matter most to the seller, such as pricing, shortened contingencies, or a flexible time frame.

“Buyers can trust their real estate agent to provide them with the information they need to make a competitive offer,” says Sherry Chen, a real estate agent.

If you’re dead set on a home (especially in a hot market), have your realtor speak with the seller to figure out how to make your offer work and any other terms outside price that will allow you to close without paying an excessive amount over asking.

Number 3: Set budgetary limits and consider whether the house is truly suited for you

Buying a home can be an emotional experience, and it’s a significant financial investment, so you want to make sure you’re making the best option for you and your financial future.

Because most homes in this market sell for more than the asking price, realtor Scott Bergmann recommends calculating the affordability of any amount higher than the actual listed price.

Bergmann also adds to set your personal financial boundaries before making an offer; no matter how much you love a home, you must be able to finance it on a constant basis.

Work with your lender to figure out how much your monthly mortgage payments will be to come up with a reasonable offer amount.

How Much Over Asking Price Should I Offer On A House In A Competitive Market Price ResearchBefore deciding how much to offer, think about whether you truly love the house and the neighborhood—as well as whether the house appraises for the price that it is listed for.

When buying a home in a seller’s market, you may wish to pay more than the selling price. High demand meets low supply in seller’s markets, sometimes known as “hot” markets. As a result, property values rise and competition is fierce. You can find yourself in a bidding war, and the only way to stand out and get the house is to make a bigger offer.

There are a few reasons why you would want to pay more than the list price.

First is you adore the house and want to ensure that you own it. Second, you’re aware that the property is the subject of a bidding war or a lot of competition. Third, the residence is overpriced (comparable sales can help you judge this). Lastly, there are cash bids on the table. 

If you know the seller isn’t particularly driven to sell—perhaps they’re testing the market or selling a second or third home—a little additional cash could be just the thing to persuade them to accept your offer.

Overbidding Should Be Avoided

Highball bids could get you into problems if you rely on financing to finish the sale.

You’ll need an appraisal of the property for the bank to get a mortgage—and to figure out how big of a loan you’ll need. The appraiser’s opinion of the home’s worth will be mostly based on comparable sales. The home will not appraise if there are no comparable sales to back your offer price, which means the bank will not loan you the full amount of your offer. Instead, it will only provide you the appraised value.

You have a few options in this case:

First option is you can challenge the appraisal and request a new one. Second, you can request that the seller accept the home’s appraised value. Third, you can haggle with the merchant to get a small discount, then pay the remainder of the difference out of pocket. Fourth, you have the option of paying the entire gap between your offer and the appraised value out of pocket. And last is you have the option to back out of the agreement completely. 

You should be able to walk away from the agreement if you included an appraisal contingency in your sales contract. You will lose your earnest money deposit if you try to do so without a contingency in place.

Bidding Against Yourself

The ultimate price in a multiple-offer situation frequently exceeds the list price. Let’s say ten people have made an offer on a house. When a seller is faced with multiple offers, he or she may be unable to choose between them. Because the proposals may be identical, the seller may decide to ask each buyer to submit their highest and best price. It’s similar to a presidential election runoff.

Many buyers may regard this as a second chance to purchase the property. The approach is known among agents as “bidding against oneself,” in which you are prompted to raise your price without knowing how much the other offers are worth—or if yours is already the best. Proceed with caution in this area, and keep in mind that the sellers can always counteroffer if they believe the house is worth more. Without further information about what they’re searching for in your proposal, you don’t have to raise your bid.

Reduce Your Risk With an Escalation Clause

Some buyers may include an escalation clause in their purchase offer in highly competitive markets. The following is an example of how an escalation clause works: A seller is asking $200,000 for his home. To beat out other purchasers, the potential buyer might draft an offer that gradually increases her bid. The provision may, for example, state that she will pay $1,000 more than the highest competing bid, up to a maximum of $220,000.

Increasing Your Bid

How Much Over Asking Price Should I Offer On A House In A Competitive Market Housing Prices RiseSimply put, it’s impossible to make broad statements about when you should and shouldn’t make a highball offer. On the plus side, paying above list price generally results in you getting the house, and not paying above list price may result in you missing out on a chance to get the house you desire. Keep in mind that in highly competitive markets, you should always be mindful of the possibility of sellers using manipulative tactics.

If you decide to offer more than the asking price, run the numbers by your agent or, at the very least, research comparable sales to ensure the amount is reasonable. Aside from appraisal issues, you want to be sure you’re spending your money wisely and that you’ll get a return on your investment when it’s time to sell. 

Issues may arise if you offer more than the asking price

Making an excessively high offer may come back to bite you.

Suzanne Hollander, a real estate attorney, broker, and professor of real estate at Florida International University, advises that “you may not qualify for your mortgage loan because the loan won’t appraise for the amount you offer”

Keep in mind that a lender will not allow you to borrow more than the appraised value of your home. You can still pay more than the house is worth, but you’ll likely have to pay the difference in cash. There are a few options for accomplishing this.

What to do about a low appraisal

If the home appraises for less than the whole offer price, you may have to pay the difference in cash.

Let’s imagine a home is listed for $300,000 and there are numerous bidders. You offer $320,000 to win. However, when the appraiser investigates the region for comparable homes, he discovers that the greatest price that can be justified is $310,000.

To offset the appraisal shortfall, you’d have to come up with $10,000 in cash in addition to the down payment.

You could also modify the terms of your loan to cover the appraisal gap.

Assume you planned to put down a 20% down payment on $62,000, but there was a $10,000 appraisal shortfall. You might pay for it out of pocket and put less money toward the down payment. However, you may not be able to put down 20% and will have to pay private mortgage insurance, at least for the time being.

An appraisal contingency can help.

How Much Over Asking Price Should I Offer On A House In A Competitive Market House AppraisalInclude an appraisal contingency in your offer if you’re concerned that your offer price will surpass the new home’s appraised worth.

This contingency won’t make up for a low appraisal, but it will get you out of the purchase contract if the appraisal is too low for your mortgage lender to proceed.

You won’t have to worry about losing your earnest money deposit if you overestimate the home’s sale price by a few thousand dollars this way.

Some real estate agents advise that you include an escalation clause in your offer. As more offers come in, this type of condition automatically raises your offer price. In your escalation clause, you can specify a maximum offer.

When you’re in a seller’s market, this may seem appealing, but there’s a catch: your escalation clause tells the homeowner exactly how much you’re ready to pay for the home, which isn’t a good technique if you need to negotiate further.

Many potential house buyers prefer to make counter-offers the old-fashioned way rather than using auto-pilot when it comes to something as serious as a home purchase.

Today’s home buyers should expect competition

“In today’s market, where there is more demand for properties than supply,” “a buyer often needs to make an offer above asking price to sweeten their deal.” “This is especially true when numerous competing offers or a bidding war are present.”

Hollander agrees, and she claims that inventory shortages have worsened during the epidemic era.

“Low interest rates, along with an increase in working from home, have drastically raised demand for single-family houses in many places, resulting in a reduction in inventory,”. “Sellers have the option of choosing the best offer they receive due to the high demand and limited availability.”

Even if they avoid outright bidding wars, buyers should be willing to pay more than the asking price for a home they really want if it’s still within their budget.

How can you figure out what your maximum home-buying budget is?

How Much Over Asking Price Should I Offer On A House In A Competitive Market House BudgetEstimate your maximum house purchase budget to help you decide the greatest home sale price you can pay.

Tyler Forte, CEO of Felix Homes, adds, “Your maximum budget for a home should always come down to what you can afford.”

“Make a monthly budget and include upfront costs like lender points, closing costs, and a budget for repairs and maintenance once you’ve moved in.”

Working backwards and evaluating a monthly payment you’re comfortable with may be helpful.

“For example, if you can only afford a $1,500 monthly mortgage, anything more than that is out of your reach.” You’ll be able to establish your maximum offer using that affordability information and your known interest rate,” Hollander advises.

This mortgage payment calculator can help you figure out how much of a mortgage payment you can fit into your monthly budget.

Remember that your mortgage should only account for 30 to 40% of your monthly take-home salary when determining your house buying power.

There is no one-size-fits-all formula for how much more you should pay than the asking price. While today’s competitive market necessitates a competitive offer, it’s also critical that you’re comfortable with the amount and that it matches with your long-term financial objectives.

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