Buying a Home? Why It Could Pay to Make an Offer Above the Asking Price

BY MAURIE BACKMAN • THE MOTLEY FOOL

Library | 12/24/2020
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Given that mortgage rates have dropped to record lows, you'd think buying a home today would be a fairly easy endeavor. But not so. In fact, low mortgage rates have driven up buyer demand, making it harder to purchase property. 

 

That's not the only reason it's so difficult to buy a home. There's also a major shortage of available homes for sale, forcing buyers to duke it out over the limited properties that are available. Meanwhile, sellers have the upper hand to price their homes as they see fit, so buyers wind up paying extra for properties that would normally list for a lot less. 

 

If you're hoping to buy a home today, you may find it's a frustrating experience. But here's one strategy worth employing -- offering above a home's asking price. 


   

Why it pays to offer more

A lot of today's listed homes are subject to bidding wars, where two or more buyers attempt to outbid one another by topping each other's offers. Bidding wars are great for sellers, but for buyers, not so much. Landing in a bidding war could create a scenario where you end up paying a lot more for a property than you should. Or, the opposite can happen -- you can lose the bidding war and the home you had set your heart on.

This is why it could be a smart bet to offer more than the asking price. Say you're interested in a home that's listed for $300,000. Given today's market, there's a good chance someone will be willing to pay more than $300,000. If you offer the seller $310,000, that seller might accept your offer immediately rather than sit on it and wait for a better one. 

 

Let's say you don't offer $310,000, and instead stick to the asking price of $300,000. If another buyer comes along and offers $310,000, suddenly, you'll need to go even higher to get that home. If you have flexibility in your budget, offering a little more than a seller's asking price could help you avoid a bidding war in the first place.

 

How much higher should you be willing to go? Well, that depends on the market and the extent to which inventory is limited. It also depends on what you can afford. Your real estate agent can help you figure out how much to offer to avoid a bidding war, but only you know what you can afford.

 

Just be careful your offer is not so high that the property's appraisal won't match up to the offer price. If this happens, your mortgage lender won't be willing to lend the full amount needed to purchase the home, which creates a whole new set of issues.


    

What if you land in a bidding war anyway?

It's possible to offer a seller more than his or her asking price and still land in a bidding war. At that point, you'll need to ask yourself how high you're willing to go to get your offer accepted. If you're in love with the home in question and can afford to pay more, it could be worthwhile to go back and forth with another buyer in the hopes of coming out victorious. But if you're on more of a budget, you may be better off bowing out.

 

Unfortunately, buying a home in today's tight housing market is no easy feat. The strategy of offering a seller more than his or her asking price may work some of the time, but not all of the time. 

 

Remember, though, that housing inventory is likely to open up in 2021. At that point, you may gain access to a larger selection of homes, and more affordable homes, too. As such, don't push yourself beyond your financial comfort zone to buy immediately. There's a good chance mortgage rates will stay low well into the future, so if you're willing to sit tight, waiting to buy could result in a much better deal overall. 


The Motley Fool has a disclosure policy.

 

This article was written by Maurie Backman from The Motley Fool and was legally licensed through the Industry Dive publisher network. Please direct all licensing questions to legal@industrydive.com.

 

 
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