Last updated on August 31st, 2023 at 05:58 am
Are you tired of losing out on your dream home because your offer was not competitive enough?
Offering over asking price is not something any buyer prefers, but it may be necessary in today’s hot real estate market.
In this ultimate guide, we will cover everything you need to know about offering over asking price.
From understanding the local market comps and negotiating tactics; to navigating potential risks and collaborating with industry professionals, we have got you covered.
You will learn how much over asking price to offer, the benefits of offering over asking price, best practices for offering over asking price, and even how to navigate a counteroffer.
You will also gain insight into the cash home buying and selling process and the role of affiliates such as real estate agents.
So buckle up for an informative ride filled with expert tips and good luck in your house buying journey!
How much over asking should I offer
Determining the amount to offer over asking price depends on the local real estate market, including competition, inventory, and time on the market.
Recent data reveals that a significant number of homebuyers have been paying $50,000 or more above the asking prices (Fortune).
In competitive real estate markets, experts suggest offering an additional 1% to 3% above the list price during bidding wars (The Mortgage Reports).
Furthermore, the beginning of this year witnessed a remarkable increase in the sale of over 6,000 U.S. homes at prices exceeding $100,000 compared to 2,241 homes in the same period last year (Redfin).
Additionally, nearly 6,000 U.S. homes sold for at least $100,000 over asking price at the beginning of this year, up from 2,241 during the same period last year (source: Redfin).
Offering 1-5% over asking price is usually safe.
However, it’s best to consult with a real estate agent for a more tailored strategy.
They have access to the MLS which is going to provide a wealth of data you don’t have access to.
Local market comps
Knowing the local market comps in the housing market is going to give you a leg up on the competition.
Buyers who don’t have access to the local MLS are at a severe disadvantage.
If you don’t have access, then hire a realtor who does.
Factors considered in comps include size of the home in square footage, location, condition, and any specific feature relevant to the type of comp.
Be sure to negotiate with the seller, considering incentives such as waiving contingencies or a quick closing.
Working alongside an experienced real estate agent is always a good idea for potential buyers looking to make a competitive offer on their next home purchase.
Finding the right lender for you
Find the right mortgage lender.
Comparing rates and terms from different lenders to make sure that you get the best deal possible.
Working with a lender who understands both your financial needs and the current market conditions in your area is critical.
Getting pre-approved is a must today. If you don’t, sellers won’t take you seriously.
Your mortgage rate is going to be based upon many factors including your credit score.
Negotiating tactics to consider
- Waiving the appraisal contingency and can put you ahead of the other buyers.
- A short option period is always preferred by the sellers and their listing agent.
- Consider making personal connections through letters or videos, too.
How using a contingency can protect yourself
Contingencies are usually part of all housing contracts.
They allow a homebuyer to back out of the deal if certain circumstances arise.
Common contingencies include a home inspection, appraisal, and financing contingencies.
You can protect yourself from potential issues that may arise during the buying process.
For example if your inspector finds out that the house needs a new roof and it has 10 thousand dollars worth of foundation damage, you might rethink your purchase.
If you don’t quality for the loan, you will get your earnest money deposit back!
Overcoming potential appraisal issues
If the house you have under contract doesn’t meet the appraisal amount, there is going to be a problem. That is what is called an appraisal gap.
If that happens the buyer may have to make up the difference between the price of the house and what the appraisal says its worth.
You might consider waiving the appraisal if you know this might happen.
A realtor who understands local market conditions can certainly let you know when waiving appraisal contingencies or paying for the home in cash makes sense for you
The benefits of offering over the price
Offering over the listing price is a good idea only when buying a home in a competitive housing market.
If it is a buyer’s market; then everything changes, but that isn’t the case today.
It can help you stand out amongst potential buyers, increase the chances of your offer being accepted, and potentially saves you time and money.
By showing your commitment to the property, you have a better chance of winning bidding wars with your competitive offer.
But the question is always how much?
You don’t want to bid against yourself.
Winning bidding wars with your offer
- Always research comparable homes and determine the fair market value of the property.
- A realtor can run a CMA for you. This gives you the latest sales in the area.
- Make sure that you make them a competitive offer with reasonable terms and a solid down payment.
- This means a short option period with a high dollar amount.
The risks of offering over asking price
Paying more than what the sellers are asking can be a good idea in a competitive housing market; but comes with several potential risks.
- Overpaying for a property can lead to financial strain and potentially even foreclosure; so weigh the potential risks versus the benefits before making an offer.
- In a buyer’s market, where there is a lot of inventory and not many buyers, you may be able to get away with offering less than the asking price.
- Skipping the Inspection: In a competitive market, some buyers may be tempted to waive the inspection to make their offer more attractive. This can lead to expensive surprises later on.
- Draining Your Savings: It’s a mistake to offer so much that you drain all your savings. Aside from the down payment and closing costs, there are always unexpected expenses when purchasing a house.
- Not Considering Resale Value: Paying above the asking price could make it harder for you to recoup your investment when it’s time to sell, especially if market conditions change.
- Not Being Pre-approved: Sellers are more likely to accept offers from pre-approved buyers. Being pre-approved shows the seller that you are serious and able to afford the home
How do I know if the asking price is fair
- Research comparable sales
- Consider market conditions
- Review property history
- Seek professional opinions
- Consider property condition and amenities:
- Factor in location
- Negotiate and conduct due diligence
Financial considerations when buying a home
- You must factor in your budget, including income, savings, and debt.
- Always consider potential future expenses such as repairs or renovations.
Potential complications with closing
To avoid potential complications at closing, it’s important to understand your budget and financial limitations before making an offer above the list price.
- Overbidding could result in appraisal contingencies that cause financing issues down the line.
- If this occurs your in a pickle.The seller probably won’t want to lower their asking price.
- Buyer’s remorse may also set in if you offer too much above market value when purchasing a new home.
Reviewing best practices for offering over asking price
There are several best practices to keep in mind for success.
- Determine your budget and calculate how much over the list price you can comfortably afford based on factors like your down payment amount, monthly mortgage payment, and closing costs.
- Understanding the local real estate market conditions. This can help you decipher if offering over asking price is necessary. Always look at recently sold homes in the subdivision.
- Having a pre-approval letter from your mortgage lender will show the seller that you’re a serious buyer who has already taken steps toward financing your purchase rather than just window shopping.
- Finally, making a clean offer with minimal contingencies can make your offer more attractive without allowing potential buyers to step in with better terms.
Using an escalation clause to stay competitive
To compete in a hot housing market, using an escalation clause can be a good idea.
With this provision, you can increase your offer price if other buyers are competing for the same property.
By setting a maximum amount and bid increase, you have wiggle room to make a competitive offer without going overboard.
To draft an appropriate escalation clause and negotiate on your behalf, you will need help.
That is why we recommend a realtor to assist you. Remember buyers don’t have to pay the commission to the buyer’s agent directly.
It comes out of the proceeds from the seller’s account.
Other strategies for competing in a hot market
In a competitive housing market like the one in the U.S.; buyers may have to get creative to get the house!
- Increase the earnest money deposit
- Pay the seller’s HOA fee
- Write a compelling offer letter or email can also set you apart from potential buyers.
- Waive the appraisal.
- Offer the shortest option period possible. Some buyers have a zero day option.
How to navigate a counteroffer
Understand the seller’s motivations and priorities.
Normally the seller wants the highest price. But maybe they want to stay in the house a little while longer.
Or maybe they want to move today.
Allowing the seller to stay inside their home after the close might be just what they need to accept your offer!
Negotiate other terms besides the sale price, as offering over asking price won’t always guarantee success.
Keeping your cool during negotiations
- Stay calm and strategic.
- You may not win; accept that and you will be in a stronger bidding position.
- Let your realtor do all of the negotiation.
Always remember that offering over asking price doesn’t always guarantee acceptance, so have a backup plan ready.
What to expect during the closing process
- Expect to sign legal documents such as the deed and mortgage paperwork when closing on your new home.
- Providing proof of homeowner’s insurance is required, along with bringing a cashier’s check or a wire transfer for the down payment and closing costs.
The importance of due diligence
Before you make an offer on a. house or list price due diligence should be your first step.
- Before you even tour the property, runs comps.
- Tour the property to make sure you want
- Get a home inspection. Any realtor that recommends you pass on one, they probably don’t have your best interest at heart.
In order to waive an inspection, you must be 100% certain.
Collaborating with professionals to win
Surround yourself with professions such as a trusted real estate agent, lender, home inspector, and title company can make your experience smoother in today’s competitive housing market.
Don’t just hire any agent. A real estate agent who knows the local market conditions can guide you through the bidding war; and help you write a compelling.
Partnering with a mortgage lender to get pre-approved for financing provides you the piece of mind you need to know that you can afford the home.
More on Local Agents
Local agents have the expertise to evaluate market conditions for listing prices.
Remember to always do your research
Research the current market conditions and similar homes’ sale prices.
Final thoughts on what to offer
Offering over asking price can be a smart strategy in competitive real estate markets.
However, it’s important to understand the risks and benefits involved and take all necessary precautions before making an offer.
This includes researching local market comps, finding the right lender, writing a compelling offer letter or email, and hiring the right agent.
Remember to always do your due diligence and weigh the pros and cons of accepting or declining any offer.