If You’re a Buyer, Is Asking Price Enough?
If You’re a Buyer, Is Asking Price Enough?
If you’re in a bidding war for a home, you may need to offer more than the asking price to secure the transaction. Offering more than asking price may make sense in specific situations, but sometimes it makes more sense to walk away from a deal. Let’s dig into this a bit more.
Why Would a Buyer Offer More Than Asking Price?
The asking price, or list price, is the amount a seller lists the home at. It’s actually very common for buyers to offer a dollar amount over the asking price, especially in competitive markets. Sometimes a seller lists a home at a lower price in order to gauge interest in their property.
Buyers typically bid above asking price in a seller’s market, which occurs when demand for buying homes outweighs supply. This gives more power to the seller, and drives buyers to spend more money on their future homes. In a seller’s market, many homes sell for tens or even hundreds of thousands of dollars over asking price.
Should You Offer Over Asking Price?
There isn’t just one answer to this question, as every listing is different. However, in a seller’s market, buyers should be prepared to offer above the asking price for a home they really like. In this scenario, go into the bidding with a number that you’re comfortable with. Don’t go higher than you can afford or doesn’t make sense for you and your family.
In a competitive market, some real estate agents say that offering 1% – 3% more than the highest competing bid offers a competitive advantage over other buyers.
Tips When Offering Over The Asking Price
If you decide to bid more than the listing price, it’s best to come prepared. Consider the following tips when preparing to submit an offer above the asking price.
Understand The Housing Market
Educate yourself on current housing market trends. Is the current market a seller’s or buyer’s market? If it’s a seller’s market, you need to prepare yourself for the possibility of bidding over the asking price.
Buyers should also use their real estate agent as a resource in understanding the housing market. Real estate agents can provide insider and expert advice to help you navigate even the most competitive markets.
Know When to Walk Away
Know when to walk away from a deal, especially if it stretches your budget too thin. Your financial health largely depends on your ability to pay your mortgage, and depleting your savings for a large down payment doesn’t always make sense either. Work with a realtor and/or financial planner to create a realistic budget, and decide the amenities that you can afford within that budget.
If you make an offer, you’re obligated to complete the transaction if the offer is accepted, so bidding over your budget isn’t ideal.
Get Preapproved For A Mortgage
Mortgage preapproval determines how much money you can borrow to buy a home, before making the purchase. The lender evaluates your financial situation–such as your income, assets, and credit score, before giving estimates on loan amounts, types, and interest rates you are approved for.
This process is important as getting preapproved for a mortgage can give buyers a stronger hand during a bidding war. Besides helping the buyer determine the kind of loan they are eligible for, preapproval proves to sellers that you’re serious about buying a home.
Make a Competitive Offer
An effective way to get the upper hand in a bidding war is by adding incentives that make the offer more attractive to the seller. For example, you can put down a more substantial earnest money deposit, which is the money you put down before closing. This displays how serious you are about the offer.
For buyers who don’t need to take out a mortgage, making an all-cash offer can work to your advantage. All-cash offers give sellers a quicker and safer option than a financed offer. Because of this, you can potentially beat out other competing offers by buyers who need financing.
Should You Offer More Than The Asking Price?
Offering more than the asking price may result in a quick end to a bidding war, with you, the buyer, coming out victorious. While the extra price tag may be worth it if you’re in a competitive market or you just bought your dream home, make sure to tread lightly. The bottom line: be prepared when making your offer, regardless of the current state of the market.