Throughout history, home prices have been negotiable. This usually means buyers can push sellers below their listing or asking price. However, buyers are dealing with a record-low number of homes available in today’s market, and the opposite is now true.
And for many buyers, paying over the asking price for a home goes against everything they know, as many of them have the sense that you’re always allowed the opportunity to negotiate real estate transactions.
Still, many find that they have no other choice but to pay over the list price. But, why is this? Let’s discuss the reasons why buyers are paying over asking price on homes for sale.
Reasons Why Buyers Are Paying Over Asking Price On Homes For Sale
There are various reasons why buyers will offer over the asking price, but there is only one of these leading today’s market – low supply. Anytime you have what’s called a “hot” or seller’s market, there’s low housing supply but high demand.
As a result, prices for homes begin to rise as competition stiffens. In this environment, you may find yourself in the middle of a bidding war and willing to offer a higher price to secure the home.
Aside from what’s currently going on with the historically-low supply of houses for sale, here are some other reasons buyers will pay over the asking price on a home for sale:
- You love the property and don’t want to miss out on it.
- You already know the listing is getting a lot of offers, and there’s a bidding war.
- Other potential buyers have offered all cash.
- The home is undervalued (you can use comparable sales to gauge this)
Another situation where it’s common for people to offer over the asking price is when dealing with an unmotivated seller. For instance, maybe the person just wanted to test the market, or it’s their second or third home, either way, extra cash can sometimes be the motivator needed to obtain a particular home.
However, just remember that the most crucial factor to consider is your finances. Regardless of how much you want a house, don’t offer more than the asking price if you cannot afford it or if you weren’t approved for a loan of that magnitude.
Don’t Be Careless With Overbidding
As we said, before you get into a bidding war over a home, be sure that you have the means to follow through with your offer. In other words, if you’re using financing to finalize the deal, then a highball offer may actually cause you some trouble.
Banks require an appraisal before you can get a mortgage and determine the loan size you’ll need. Generally, an appraiser’s value for a home is primarily based on comparable sales.
If no previous sales support the price you offered, the house will not appraise, and the bank will not provide you with the total amount for the property. Instead, they’ll give you the amount of the appraisal.
Don’t fret, though, as you do have several options:
- Appeal the appraisal and obtain another one
- Ask the seller to accept the home’s appraisal value
- Pay the difference between your offer and the appraisal out of your pocket
- Negotiate with the seller and see if they’ll lower the price and cover the rest out of pocket.
- Back out of the deal entirely
The good news is that so long as you included an appraisal contingency in the contract, you can back out of it unscathed. Though, it’s worth mentioning that if you back out without the contingency, you’ll forfeit your good faith deposit.
Given today’s volatile housing market, you may find that the more desperate you are to buy a home, the more you’ll end up overpaying. So, go into the process with an open mind that’s armed with information and try your best not to make decisions based on emotion, and you’ll be fine! In the end, there’s nothing wrong with overbidding on a home as long as you have the finances to back it up.