When Do You Offer Over the Asking Price?
In a traditional home-buying market, the buyer offers less than the seller’s listing price. This starts the negotiations. The seller counteroffers and the two parties usually meet somewhere between the two original prices. It’s a simple process when it works.
That is not always the case in today’s real estate market. Low-interest rates and a hot real estate market in certain areas of the country have combined to create an environment where buyers sometimes compete for the right to purchase a home. That often means that a buyer must offer more than the original list price. The amount can be a few thousand dollars above asking price, but in some situations, buyers have been known to offer tens of thousands of dollars over the listed prices.
So, when is the right time to offer more than the list price for a house? That can depend on a variety of personal factors, here are several situations when it might be a good idea to bid above the asking price.
Short window of time to purchase a home
People buy houses for a variety of reasons, and in some situations, a decision has to be made quickly. When you move due to an employment change, you might need to make a decision quickly on buying a new home. You might fly in a few weeks prior to starting the new job, and a real estate agent will show you the current homes on the market. If you need a home before you move, you might be a motivated buyer and could decide to pay above the asking price. That gives you a better chance that the offer will be accepted, and you leave town with peace of mind. You know that a house is under contract, and it will be waiting for you when you arrive.
Other homes in the neighborhood sold above asking
When you are about to make an offer on a home, your real estate agent will show you a list of comparable properties in the neighborhood. The information gives you a sense of the market and the price that will make an offer competitive. If a majority of the homes in the area are selling above asking price, you will more than likely need to make an offer above the list price. You don’t want to offer too much above listing price, but you also will have a hard time competing if other homes in the area sold significantly above the asking price.
Multiple bids that are similar
Sometimes, a buyer will receive several offers that are similar, and in those instances, a buyer might ask everyone who submitted an offer to resubmit bids. The seller wants to drive up the price, so rather than making a counter offer for one of the bids, the seller wants everyone to bid higher for the home. You can resubmit an offer at a higher price and hope your offer stays competitive.
It’s a sellers’ market
Many markets in the United States face record-low inventories, and that is driving up prices. Some markets are seeing double-digit annual increases. You might face a situation where you are competing against numerous other buyers for a limited number of houses. Sellers will often weigh multiple offers. In this case, you will most likely need to bid higher than the asking price to win a property. Other buyers know the market, and that can create a situation where a property is bid upon significantly more than where it was listed.
The house is undervalued
If you are a patient shopper, you can find good values in today’s real estate market. You might find a situation where a person dies, and the family wants to quickly sell the property at a below market rate. Or maybe, you will find a property that is not as desirable as others, it might need a little TLC. You can make an offer above listing price because you know that even at the higher price, the property is a good value. This will create an incentive for the seller to work with you.
You can’t risk losing the property
Buying a home can be an emotional experience. You walk into a house, and you see everything that you are looking for in a new home. You can decide to offer above the asking price because you don’t want to risk losing the property to another buyer. The higher bid gets the attention of the seller, and you have a better chance of finalizing a deal on the home of your dreams.
Buyer needs something from the seller to help with closing
A lot of buyers these days are making all-cash offers. They might sell a property in an extremely expensive market, and they have extra cash to offer on a home in a smaller market. If you need a mortgage to finance the property, you can offer above the list price. That way you can compete against the all-cash buyer. The seller will choose the all-cash offer if the values are similar. The buyer might be willing to move forward with your offer rather than the all-cash offer if you create a financial incentive.
Sellers list homes for a variety of reason, but sometimes the seller is not motivated. This can happen for a variety of reasons. They might want to test the market, or they are still completing repairs. To help increase the seller’s motivation, you can offer the person above the asking price. The seller has to seriously consider an offer that is above listing price, and the extra money might give you the edge.