• Nina Palmer

Should you bid over asking?

So you are in the market looking for a new home. The rates are too good not to make the move. But it seems everyone else has the same idea. Multiple people are standing with you in open houses, scheduling showings isn’t as flexible as you thought it would be. Your agent is only able to schedule a 15 min showing at a time and inconvenient times are all that is available. You finally pick a home and decide to present an offer, only to discover that your offer will not be considered until all offers are received after the weekend, making your offer one of many instead of first in line. So how does one compete?

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In the Southwestern Idaho market the days of asking for new carpet and for the seller to pay for the closing costs are becoming rare. Buyers are having to get aggressive with their offers. Big gestures like paying for your own closing costs, waiving your inspection contingency, and most often seen at this time, making an offer over asking is now common place.

Today let’s take a look at the last option, making an offer over asking price. In just my last two listings we have received multiple offers and offers over asking price. Mine have been $15,000 and $30,000 over asking, but I have heard of much higher from other agents. It important to note that the asking prices we decided to go with were based on very comparable and competitive comps. I even called the agents that had pending offers to see if their listings appraised. The fact is the homes are being listed at the appropriate price even when they are getting offers over asking.

When using an offer amount to entice a seller there is more to it than just offering the most. Although it doesn't hurt. One thing to note is that you may not be privy to the amount of the highest offer. A lot of times, when a list agent is receiving multiple offers we will get an email requesting your clients submit their "highest and best" offer.

Before you throw all your cash in, consider these three things.

1. Can you afford what you are offering?

Consider your down payment, subtract that amount from the amount you want to offer. That is your loan amount and it has to appraise. When I am on the buyer's side, I always run the comps on the home to estimate it's value. You can also have your agent help you calculate the costs. You need to consider your down payment and your closing costs. Your closing costs will be made of lender fees and escrow fees.

You will also have upfront costs. Like paying for a home inspector and they may recommend further inspections by a pro that may have their own inspection costs. Depending on the negotiation the appraisal could be a buyer's or seller's expense (Lenders can request this be paid at closing as well, but you need to ask them to do so).

You will also certainly need to have earnest money. This amount is up to the buyer, however 1% of the purchase price is a common expectation. Earnest money is not something that can go on a credit card. It needs to be cold hard cash. Something to keep in mind is that once you reach the end of your transaction the earnest money is returned to you and can be applied to your down payment.

2. Put your money where your mouth is.

This is a seller's market, you need to demonstrate that you are able to buy the property. Your lender should be providing you with a loan approval letter every time you submit an offer. The listing agent will certainly point out offers that haven't shown in writing that they can deliver on their promise.

3. You don't have to over pay.

Ask your agent to write in an escalation clause. I think this is the best tactic for a competitive over asking offer. It is always up to the seller what they want to disclose when it comes to offers on the table. I can ask, but they don't have to tell. A listing agent can only disclose what they have been given written permission to disclose by their client. So what if you don't know what the highest offer is? What if the highest offer is only $5,000 over the asking price and you can do $10,000 or $50,000?

An escalation clause will give you the highest offer without sacrificing your hard earned money. Let's say you are looking at a $500,000 home and you can go $50,000 over, It would look something like, "Buyer will pay $1,000 above highest offer up to a purchase amount of $550,000" You would also add into the terms and conditions that the seller will need to provide the contract of the highest offer as proof.

I took some time to chat with one of my lenders, Jim Gentle at Movement Mortgage, to get his thoughts on the topic. Here is what he had to say about our current market.

"With housing inventory extremely tight, many homes for sale will have multiple offers. You may wonder if you should put an offer on the home that is above asking price in order to win the contract.

The forecasted Historical appreciation for Ada County is expected to be 3.7% over the next year and 17.9% over the next 5-years. This may help you evaluate the amount, if any, that you might be willing to offer above asking price.

If you decide to delay your purchase, the market will not remain idle and you may miss out on appreciation gains. And many people don’t consider the additional benefit of amortization that would have occurred while you’re waiting."

Ready to start looking for a home? Let's start with that approval letter. Contact Jim Gentle at jim.gentle@movement.com

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