It’s a crazy market out there and with some buyers going to extremes to win the home, they might find themselves in a world of hurt later on down the line. In such a crazy seller’s market is it really unheard of to offer more than the asking price? When does it make sense to offer more and when does it? Is it ever a bad idea?
This real estate market with buyers snatching up homes before they can even be listed on the MLS is unusual but not unheard of. Depending on the original cost of the home, some buyers are willing to go 25% over the asking price, which can have some major drawbacks in the near future. Multiple beddings, several offers, and escalation clauses are driving up the value and the cost of most homes around the Portland real estate market. A real estate broker in Austin Texas told the Wall Street Journal she’s had a buyer offer $500,000 above the asking price for a home with a pool! And what’s driving it? Low inventory.
In March, the housing market at 28% fewer homes than a year earlier. Historically low mortgage rates are enticing buyers to purchase homes at rapid rates. And, sellers are expecting a lot more from buyers when they do list their homes.
A recent Realtor.com survey showed the 24% of homeowners expect to get more than the asking price and 29% of sellers plan to ask for more than what they think their home is actually worse. 16% of home sellers expect a bidding war on their home and have multiple offers. 25% expect to have an offer within a week of listing; 16% expect to receive a cash offer; 24% don’t expect to pay for any repairs or improvements to the property; and 16% of sellers expect buyers to waive all contingencies including financing, appraisals, or even the home inspection. [Source]
Downsides to Offering More Than the Asking Price
However, all this overpaying could lead to buyer’s remorse later on. For instance, if the home will not appraise for the inflated amount, buyers will need to make up the difference, which means that the minute they close on the home, they now have negative equity in the property, owing more on the home than it’s actually worth.
Financial analysts are urging buyers to stay within their budget and try not to overstretch just to win the bidding war. Most analysts recommend homeowners spend no more than 35% to 45 % of their monthly gross income on a housing payment, which includes taxes, insurance, and any homeowner association dues.
Buyer’s remorse is very real and with buyers putting in more than the home is worth, chances are the half to stay there for several years just to make up the difference. If many are willing to do that, buying an overinflated home might be ideal, especially if the need to get into a home is urgent. Buyers may not have a choice, especially since a lot of homes are getting multiple offers at a rapid rate. One home in Texas got 97 offers in the first weekend. How are buyers supposed to compete with that?
Well, it definitely takes the right agent, the right financial setup, and being prepared for negotiations. If you find yourself losing out on bidding wars, getting frustrated over the inventory in the Portland real estate market, or just need help finding and purchasing the right property, contact our office today.
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