The listing price you see is the price you pay!

Not quite. In a seller’s market like the one we’re in, and the one we’ve been in for a while now, a home’s sticker price does not reflect what you might end up having to offer. In a traditional sense, this is pretty normal. Going anywhere from 1–3% percent over the listing price is common practice.

However, since the market has drastically changed, those few percentage points in many cases are not nearly enough to get you a seat at the table. It’s more likely to leave you out on the front lawn peering through a charming bay window as the ink dries on a contract from a competing buyer. 

Right now, offers range anywhere from $20,000–$100,000 over. It’s even been noted that over 30% of offers are $50,000 above the asking price. That is a huge variable in your cost projection when searching. So, how do you pinpoint what your actual budget is and the best offer you can make? Here are a handful of tips to help you make sense of it all.

Research Local Market Comparisons

You’ll hear the term comps often when you’re looking for a home. What this abbreviated term refers to is the value comparisons of similar homes in the surrounding area. Appraisers, sellers, and agents use this information to determine the value of a home, and when it comes down to it, the information is extremely important to you with respect to value over time. 

But more importantly, depending on the estimated values of similar homes, the comps will be an indication of just how fair that sticker price is.

So, hypothetically speaking, let’s say you’re looking at a 3-bedroom townhouse that’s listed for $450,000. Two blocks over a similarly sized 3-bedroom townhouse is valued at $420,000. If you were to offer $470,000, in theory you could be committing more to the purchase than the house is actually worth.

This is why you want to work with a local market expert who understands the comps, has extensive experience working in the area, and can rationalize the listing price so you can make a compelling offer.

Think About Your Budget

Every home buyer enters their search with a certain number or range in mind. But there’s a difference between what you can afford and the listing prices, especially with how far above asking these offers go. Basically, there’s a hidden cost that needs to be taken into account.

The first thing to do when starting the process is find a reliable lender and get pre-approved. During the pre-approval stage, you’ll discover your budget based on income, credit, etc. But once you have that number, it would be practical to factor in how far above asking you have to go in order to win the home. If that extra topping puts you above your budget, then maybe the ceiling for your range is realistically a little lower than you originally thought. 

Mindful agents should build these considerations into your search criteria so you don’t end up touring homes that aren’t in your budget.

Mind the Gap

Congratulations, your offer was accepted because of how amazing it was for the seller! But what if you had to go way over the home’s value in order to be the lucky winner, and what promises did you make to look favorable in the process?

Any time you make an offer above the asking price, there’s a possibility more money will come directly out of your pocket at closing instead of being wrapped up in your loan, especially if you had to guarantee an appraisal gap (i.e., no matter what, you agree to pay the whole offer).

Eventually, an appraiser will go in and evaluate the home using those comps we talked about earlier. If that appraiser determines the value is under your offer, that means the lender will only cover up to the appraised value, leaving you to cover whatever is left. The more you guarantee to cover that gap in your offer, the better you look on paper but the more you could be adding to the initial costs in addition to your down payment. That’s more directly coming out of your pocket.

In summary, you could find yourself breaking your budget because of this gap.

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The offer is the first big step in getting closer to buying a home, and the factors above are only a handful of things involved in the process that can ultimately impact your buying power. This is why it’s so very important to have market experts and highly experienced agents working with you to evaluate your offer within the context of other home values and using individually crafted home searches to find the right homes for you.

While making competing offers is intimating, you do have other options. With off-market listings, you can avoid the stress that comes with competing against other buyers. The Keri Shull Team specializes in bringing clients listings that no one else has access to. So instead of stressing and having to ask yourself “How much should I go over the asking price?”, you can focus on staying within your comfort zone. Contact our team today and we’ll get you started with an experienced agent who can walk you through every step of the process.