Making offer well-over asking price?

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justsomeguy2018
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Making offer well-over asking price?

Post by justsomeguy2018 »

Housing market is insane here (maybe everywhere). Homes in a hot neighborhood sit on market only a few days and will have multiple offers.

We found a house we love (finally) and want to be sure our offer is the winning bid. Home is fantastic/appears popular (flagged as a "hot home" and we expect a bidding war (multiple offers confirmed, final offers due at deadline).

We are prepared to go well over asking price (home was listed underpriced compared to comps). The bid is still well within our budget and we're not "stretching" really.

Is this a dumb move, to get our perfect home? Always worry about a "bubble" or grossly overpaying vs other bids. We are current homeowners, so if we sell our home quickly, I figure if we are in a bubble it will be kind of a "wash", since we will hopefully have gotten a bubble price for our home as well (but who knows).
supalong52
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Re: Making offer well-over asking price?

Post by supalong52 »

If you're worried about overpaying, you can always have an escalation clause, e.g., offer $25k over highest offer up to $x,xxx,xxx limit. These are crazy times so I don't think anyone can give you a definitive answer, or what you will ultimately end up being able to sell your house for.
SwampDonkey
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Re: Making offer well-over asking price?

Post by SwampDonkey »

We're waiting to close on the sale of our home. Very hot market as well. Over a dozen offers at/above asking within three days.

We settled on an offer that had an escalation clause (mentioned above). They offered $1k more than other offers, up to 10% over asking price. Several others offered escalations as well. The above poster mentioned $25k over highest offer - that seems extreme but I suppose everything is relative. If you're looking at $10M homes, $25k may be reasonable.

Five other things which made their offer appealing:
1. They offered to cover any potential gap between appraisal and agreed upon selling price.
2. They provided proof of funds.
3. Their offer included a substantial escrow.
4. Their inspection period was only 10 days.
5. They provided a letter about themselves and their family. Several others did as well. Before going through this process, I would have suggested this is nonsense. However, most of the offers began to blur together after sifting through all of them. The offers I could connect with a personal story resonated. *This was a FSBO so I did not have a realtor to sift through the offers for me. Several realtors I spoke with said they remove all PII (including letters) when they present their clients the offers they received as they want to keep it a black & white business decision, not a personal one.

As to your question on whether you should buy in this environment - I would if I knew I would be there >5 years. Anything less than that and I would not be buying.
lucky_tech_guy
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Re: Making offer well-over asking price?

Post by lucky_tech_guy »

Been there, done that. Didn't offer enough on 4 of them but finally did on the 5th.

Glad we lost, the one we won was really the best by far.

If you love it, like really love it, and plan on staying there a good while don't feel bad about it.

Just make sure you really love it and aren't just tired of looking.
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Watty
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Re: Making offer well-over asking price?

Post by Watty »

justsomeguy2018 wrote: Sat May 15, 2021 10:56 pm (home was listed underpriced compared to comps).
......
Is this a dumb move, to get our perfect home?
The low listing price was just a marketing strategy to get bids so it really means very little.

The big question is what the house would be priced at based on the comparable sales. If you will be making an offer that is a lot above what the comparable sales would justify then you need to be more worried if you are overpaying for the house.

The fallacy with that though is that the comparable sales may have also been by who also overpaid for their house.

I don't have a clue what you should do.
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Metsfan91
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Re: Making offer well-over asking price?

Post by Metsfan91 »

Offers over asking price by 10-15% seem to be the norm now in my area. Perhaps, it is same all over the country. If you think this house can be your home and you expect to live in this house for many years, then making offer well-over asking price may be the only way to buy a house now. But, you should set your limit - how much is the house worth in your view, not act desperate, and be prepared to walk away.
"Know what you own, and know why you own it." — Peter Lynch
Scotttheking
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Re: Making offer well-over asking price?

Post by Scotttheking »

I did 18% over asking. Appraisal unexpectedly came in to support.
VoiceOfReason
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Re: Making offer well-over asking price?

Post by VoiceOfReason »

Provided you have been smart with your finances for years, have significant funds and healthy financial picture, I would not think twice about going and getting your house.

Your primary house is not an investment. Don’t treat it like one.

My view has been that you’ve done everything correctly for years to be in a position where the $50k, $100k or whatever doesn’t matter. So you can aggressively win and get your house.

What’s the point of having $$ if you aren’t gonna use it for something important you reeeeeeally want?
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RickBoglehead
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Re: Making offer well-over asking price?

Post by RickBoglehead »

Irrational Exhuberance

'Nuff said.
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NYC_Guy
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Re: Making offer well-over asking price?

Post by NYC_Guy »

RickBoglehead wrote: Sun May 16, 2021 6:27 am Irrational Exhuberance

'Nuff said.
By that you mean that nobody knows nothing and we may be just at the start of the greatest economic expansion in history? So current prices are a bargain? 😁
av111
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Re: Making offer well-over asking price?

Post by av111 »

justsomeguy2018 wrote: Sat May 15, 2021 10:56 pm Housing market is insane here (maybe everywhere). Homes in a hot neighborhood sit on market only a few days and will have multiple offers.

We found a house we love (finally) and want to be sure our offer is the winning bid. Home is fantastic/appears popular (flagged as a "hot home" and we expect a bidding war (multiple offers confirmed, final offers due at deadline).

We are prepared to go well over asking price (home was listed underpriced compared to comps). The bid is still well within our budget and we're not "stretching" really.

Is this a dumb move, to get our perfect home? Always worry about a "bubble" or grossly overpaying vs other bids. We are current homeowners, so if we sell our home quickly, I figure if we are in a bubble it will be kind of a "wash", since we will hopefully have gotten a bubble price for our home as well (but who knows).
In bay area CA, I routinely see housing prices breaking fresh ground in the last 6 months. 20% to 25% over asking on homes has become fairly common. This applies to homes listed below 3m. Appraisal is frequently few 100gs below the offer because comps don't support the offered price. Winning bid usually is from deep pocket buyers who don't put any contingency in the offer and buyers don't have any problems in making up the difference between the appraisal and offer

If you are worried about over paying when fighting in highest and best circus against 20+ offers, you are not alone. But remember buying a home is a lifestyle choice. So if buying a new home is on your list of goals for this year, and price would be a wash because you are selling your old home and new PITI is easily in your range, I would be very aggressive with the offers

If the home is in the bay area, send me a link and I can give you an idea on the final sale price
AV111
likegarden
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Re: Making offer well-over asking price?

Post by likegarden »

I just looked up the selling price of the next door house, $ 360,000 , that is $40,000 above listing price, WOW! So people make offers well over asking price here. Pictures from the inside show it got new kitchen and downstairs floors. But wooden fences are ripe to fall over. We live in a medium to high COL area in upstate NY. There were/are 3 more houses for sale between the neighboring 10 houses, like a for-sales sign comes up and is removed in a few days. So we are in a hot housing market too. We bought our house in 1987 for $155k.
humbledinvestor
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Re: Making offer well-over asking price?

Post by humbledinvestor »

Aren't all the housing markets hot at the moment?
invest4
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Re: Making offer well-over asking price?

Post by invest4 »

As long as you are going in with your "eyes wide open" about this market and potential impact in the future:

* Price you will have to pay now

* Some contract terms you may have to accept now

* Unknown future which may move up, down, or sideways...potentially significantly

...then you're good to go.
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JonnyDVM
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Re: Making offer well-over asking price?

Post by JonnyDVM »

There is a very real emotional cost to losing a house you really want because your bid missed by a few K. If this is the home you absolutely, positively, want I would make the highest bid I felt comfortable with and let the chips fall where they may.
I’d trade it all for a little more | -C Montgomery Burns
BogleFan510
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Re: Making offer well-over asking price?

Post by BogleFan510 »

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Dottie57
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Re: Making offer well-over asking price?

Post by Dottie57 »

OP, I think I may have just overpaid for a new home. The inspection is done and it came back clean. New appliances and HVAC. Nice flooring and new Windows. I won’t have to fix or make any changes unless I want to. In 5 years I won’t care. This has the qualities I want andI think I can live the life I want.

Even paying more than desired, I am a bit giddy and find myself smiling often.
investingdad
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Re: Making offer well-over asking price?

Post by investingdad »

I’d avoid accepting personal letters as a seller, I’d not want the bias thing to creep in and deal with potential fallout. Keep it purely business.

As a buyer, I’d write the personal letter because, you never know.

As to the OP question, if you’re happy with the house and offer, then so be it. We overpaid when we built new in 2010 and it was a great, great decision.
Freetime76
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Re: Making offer well-over asking price?

Post by Freetime76 »

Dottie57 wrote: Sun May 16, 2021 10:40 am OP, I think I may have just overpaid for a new home. The inspection is done and it came back clean. New appliances and HVAC. Nice flooring and new Windows. I won’t have to fix or make any changes unless I want to. In 5 years I won’t care. This has the qualities I want andI think I can live the life I want.

Even paying more than desired, I am a bit giddy and find myself smiling often.
Congratulations!
If you are that thrilled, then you did not over pay. :sharebeer

OP: if you’re going to stay in the house and your finances are secure, then many years from now, overpaying a little won’t matter one bit. You’re buying your home.

Just another opinion: I like the personal letters and would insist on reading them if any were sent, but it’s not a deterrent if there isn’t one. You kind of have to assume that it’s a bland version of who the people are - mentioning their dogs if they see a dog bed, kids if they see kids rooms or photos of grandchildren...trying to paint a picture of actual human beings amongst a sea of contracts and numbers. We certainly wouldn’t make a decision in a multi-offer situation based on a protected class anyway. (I can’t picture it - oh, she’s pregnant, don’t sell to her?he’s a Vet, no way I am ... a pacifist?? ...and first time homebuyer isn’t a protected class. :wink: Just kidding, bad joke).
Please spell out new acronyms. Thank you.
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ResearchMed
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Re: Making offer well-over asking price?

Post by ResearchMed »

Freetime76 wrote: Sun May 16, 2021 11:19 am
Dottie57 wrote: Sun May 16, 2021 10:40 am OP, I think I may have just overpaid for a new home. The inspection is done and it came back clean. New appliances and HVAC. Nice flooring and new Windows. I won’t have to fix or make any changes unless I want to. In 5 years I won’t care. This has the qualities I want andI think I can live the life I want.

Even paying more than desired, I am a bit giddy and find myself smiling often.
Congratulations!
If you are that thrilled, then you did not over pay. :sharebeer

OP: if you’re going to stay in the house and your finances are secure, then many years from now, overpaying a little won’t matter one bit. You’re buying your home.

Just another opinion: I like the personal letters and would insist on reading them if any were sent, but it’s not a deterrent if there isn’t one. You kind of have to assume that it’s a bland version of who the people are - mentioning their dogs if they see a dog bed, kids if they see kids rooms or photos of grandchildren...trying to paint a picture of actual human beings amongst a sea of contracts and numbers. We certainly wouldn’t make a decision in a multi-offer situation based on a protected class anyway. (I can’t picture it - oh, she’s pregnant, don’t sell to her?he’s a Vet, no way I am ... a pacifist?? ...and first time homebuyer isn’t a protected class. :wink: Just kidding, bad joke).
Be very careful.

YOU might know that you "certainly wouldn’t make a decision in a multi-offer situation based on a protected class".
But perhaps there are others who might think that you did... and perhaps some that don't even think that you did but plan to contest your decision on that basis anyway.
And then you have what could be an exceptionally difficult way to "prove that you did not", when no one else can possibly truly read your mind. (And I'm ignoring subconscious bias...)

If any of the letters mentioned things like children, which you specifically mentioned above, and you happened to select a buyer who didn't have children (perhaps they offered more or in some other way your felt that they were 'better' buyers?), then... a claim *could* be made that you have discriminated against a "family".
Or a prospective buyer might mention proximity to a place of worship... and if you sell to someone else... possible whammo...
(We see many listings in our area that mention proximity to "houses of worship", which near us tends to mean one particular religion. I wouldn't dream of mentioning something like that, but these tend to be listings by professional real estate agents, so presumably it's phrased in a reasonably "safe" way.)

But keep in mind; Just about anyone can sue just about anyone else for just about anything, in the USA at least.
And then the defendant will need to... defend. That could be simple, quick, and relatively inexpensive... or not at all... You might not be able to collect your expenses if you win; depends upon case and jurisdiction, etc.

It's just too risky, in many minds.
I wouldn't want to read even the sanitized version of such letters.
I admit I had to laugh/cough upon reading the description above about
"... Several realtors I spoke with said they remove all PII (including letters) when they present their clients the offers they received as they want to keep it a black & white business decision, not a personal one. ..."
I mean... "black and white"? Unfortunate wording in this context... :shock:
Such "issues" can crop up even when there was no malicious intent whatsoever.

RM
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Big Dog
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Re: Making offer well-over asking price?

Post by Big Dog »

yes, Buyer Interest Letters have become a big no-no in California for the reasons mentioned.

https://www.car.org/en/riskmanagement/t ... st-Letters
Xrayman69
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Re: Making offer well-over asking price?

Post by Xrayman69 »

VoiceOfReason wrote: Sun May 16, 2021 6:20 am Provided you have been smart with your finances for years, have significant funds and healthy financial picture, I would not think twice about going and getting your house.

Your primary house is not an investment. Don’t treat it like one.

My view has been that you’ve done everything correctly for years to be in a position where the $50k, $100k or whatever doesn’t matter. So you can aggressively win and get your house.

What’s the point of having $$ if you aren’t gonna use it for something important you reeeeeeally want?
OP, the real estate market has some correlation with the general economy at large. A few questions I ask those in your current situation (as I did myself when holding out in a similar “frenzy” back in 2007-08 (ultimately buy our forever home in 2009 at 2/3 price from peak asking price):

1. If the market crashes (equities and real estate) by 20-30% from your projected home purchase price would you still feel this home is “PERFECT “ for our family as this is the place where we love not an investment fro which we define part or majority of our economic well being?
2. If the market crashes will you still have a job that will cover the mortgage (stable job in reality , not I think it is)
3. Will your spouse agree with the above
4. Are you going to move for any reason in the next 10 years ? When bidding up a home and buying at peak it may take 10 years to “break even” during a real estate correction .

Our experience we half hearted looked for homes in 2007-08:but were comfortable not upgrading as the environment sounded and looked like it is today. The economy crashed and we still had cash on hand and our confirmed stable job was still lucrative. We would have gladly paid the peak Price from 2007 in 2009 (other than the fact we didn’t want to get into a bidding war). There was no bidding war for our forever home in 2009:and in fact it was a race to cover the floor for the prior owner/builder. We put in a one time offer of take it or leave it with confirmed loan paper and flexible terms for the seller.

We still live in our forever home and it is indeed our forever home despite life changes (kid and job but not the spouse). We could not be happier. It’s nearly “tripled” in comparable home sales in our community but it’s irrelevant because this is our home where we live. We have clearly benefited from housing inflation in which our neighbors pay probably 3x our monthly mortgage and thus our 10 years left on our refinanced mortgage (based upon the 20% down payment assumption).
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bertilak
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Re: Making offer well-over asking price?

Post by bertilak »

You should pay what it's worth, assuming you can comfortably afford it. Sometimes, some things are worth more to you than to others.
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playtothebeat
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Re: Making offer well-over asking price?

Post by playtothebeat »

The concept of “above market” is nonsense. Home buying is a relatively transparent process, with multiple offers etc. The price you pay is in fact market. It might be higher than you want to pay, or higher than you would have paid a year ago. But it’s still market.
“Below market” is something you would see if the house never came to market and was sold in a non-public process. I.e. someone may have sold to a family member or in a quick-close scenario and left money on the table. You can argue that on an open market, that house would have received a higher market-drive price.
I’m always bothered by people saying that homes are suddenly above market... they’re not, it’s just that the market values have gone up, driven by low inventory and easy access to capital, among other factors.

If you like the house, and are comfortable with the purchase price, buy it and live in it. Doesn’t matter what the initial asking price was. For all you know, you might be buying at the bottom!
SwampDonkey
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Re: Making offer well-over asking price?

Post by SwampDonkey »

BogleFan510 wrote: Sun May 16, 2021 10:33 am
SwampDonkey wrote: Sat May 15, 2021 11:45 pm
5. They provided a letter about themselves and their family. Several others did as well. Before going through this process, I would have suggested this is nonsense. However, most of the offers began to blur together after sifting through all of them. The offers I could connect with a personal story resonated. *This was a FSBO so I did not have a realtor to sift through the offers for me. Several realtors I spoke with said they remove all PII (including letters) when they present their clients the offers they received as they want to keep it a black & white business decision, not a personal one.
I would add a note of caution about item 5. We just received multiple offers on a home and were cautioned about the risk that a letter can invite accusations of discriminatory choices. The last thing you want is a seller faced with a 'bid protest' lawsuit. Maybe urban rumor, but in our state anything can happen and there are a lot of protections against discrimination for housing. I think it might be a negative and certainly a smart seller would be advised to not to consider it or to leave a written paper trail that they gave preference to someone who might be competing with someone in a protected class.
From the OP's position (ie. being the "buyer"), unless the personal letter they plan on submitting is extremely off-putting, the potential reward of including the letter greatly outweighs any risk.

We'll be in the market to buy again in another year. If the market is anything like it is today, we'll certainly include a personal letter.
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justsomeguy2018
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Re: Making offer well-over asking price?

Post by justsomeguy2018 »

13.5% over asking was not good enough.....dont even think it was top 3....think winning bid may have been ~17% over asking
LiterallyIronic
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Re: Making offer well-over asking price?

Post by LiterallyIronic »

BogleFan510 wrote: Sun May 16, 2021 10:33 am they gave preference to someone who might be competing with someone in a protected class.
Everyone is in a protected class. Protected classes are things like "race" or "sex," not specific races or sexes.
luckyducky99
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Re: Making offer well-over asking price?

Post by luckyducky99 »

It is never dumb to pay what you can afford to get what you want. In a hot market “asking price” is irrelevant because sellers know bidders will escalate to clear the market. In fact, listing low is common to get more buyers engaged.

Where I am desirable SFHs are selling for 30% over list routinely.

Offer what you feel comfortable offering and cross your fingers. If you’re planning staying for a long time, whether it’s a bubble or not is irrelevant.
protagonist
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Re: Making offer well-over asking price?

Post by protagonist »

We are looking for a winter home in FL and we are in the same situation. It is scary.

You need to ask yourself some questions, since you already said you can easily afford it:
1. Do you care much if the home loses value?
2. If you sell the home will you likely buy another one in the same or similar market? If so, and yours drops in value, the one you would trade it for probably would too so it would be a wash.
3. Do you think you will have the home for the rest of your life? If so it doesn't really matter too much if the value drops. Your heirs will still get a free house and will be happy.

If you are buying it with the thought of reselling it at some point as an investment, you should have second thoughts. If you are buying it because in your market that makes more sense than renting, and if you love the home enough, then go for it. But be careful about getting caught up in the insanity of a bidding war. Other homes will come on the market.

Consider an "escalation clause"...e.g: Asking price is $500K. You decide you are willing to go up to $550K if you have to . So you offer, say $520K with the contingency that you will beat any better offer by $x up to $550K.

We did that on a condo we loved recently. Asking price was $359K. We bid $370K with an escalation clause up to $391K. We lost the bid...we were their second choice out of over 30 bidders. The house sold in a day for $405K. In retrospect we wish we bid higher.

It's hard to advise what to do, since we haven't had much luck ourselves *laughing* Ultimately, what anything is worth is what it is worth to you.
Last edited by protagonist on Tue May 18, 2021 10:01 pm, edited 2 times in total.
Kookaburra
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Re: Making offer well-over asking price?

Post by Kookaburra »

JonnyDVM wrote: Sun May 16, 2021 10:27 am There is a very real emotional cost to losing a house you really want because your bid missed by a few K. If this is the home you absolutely, positively, want I would make the highest bid I felt comfortable with and let the chips fall where they may.
On this note, I think it’s important for folks to try and avoid getting too enamored with a particular house that can lead to the “at any cost” thinking. At the end of the day, it’s just a roof and floor walls. The whole industry is powered by marketing that plays on emotional aspect, so it’s important to see through that.
TRC
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Re: Making offer well-over asking price?

Post by TRC »

Reading this makes me want to sell my beach home.
BogleFan510
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Re: Making offer well-over asking price?

Post by BogleFan510 »

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rockstar
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Re: Making offer well-over asking price?

Post by rockstar »

Home prices are starting to drop.

Good luck. I made this mistake once. I will never make it again. And I'll never pay more than 20x rent.
ImUrHuckleberry
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Re: Making offer well-over asking price?

Post by ImUrHuckleberry »

rockstar wrote: Tue May 18, 2021 10:48 pm Home prices are starting to drop.

Good luck. I made this mistake once. I will never make it again. And I'll never pay more than 20x rent.
Does that mean home price =< 20 times estimated annual rent of same home? Is that some kind of standard ballpark figure people use when trying to determine a fair price?
Hazel-Rah
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Re: Making offer well-over asking price?

Post by Hazel-Rah »

justsomeguy2018 wrote: Tue May 18, 2021 4:56 pm 13.5% over asking was not good enough.....dont even think it was top 3....think winning bid may have been ~17% over asking
If it makes you feel any better - yesterday I bid 15% over asking price, included a 3% deposit as earnest money, and waived all but appraisal contingency. Guaranteed to complete the appraisal within 3 days and expedite all paperwork. Was confirmed by sellers agent as the highest offer but the seller selected a lower offer. No other details provided. No negotiation conversation. I am still confused. I am hoping that maybe the lower offer waived all contingencies - where I was unwilling - because it is super frustrating to know that mine was the highest offer and still didn't win.

Funny thing is I didn't care for the house (still don't) but my wife had her heart set on it. My only frustration comes from the confusion of being the highest offer and still being outbid. It is a funny story to tell I guess.

Good luck out there.
engin33r
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Re: Making offer well-over asking price?

Post by engin33r »

You can bet the winning bid waived the appraisal.
Hazel-Rah
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Re: Making offer well-over asking price?

Post by Hazel-Rah »

engin33r wrote: Wed May 19, 2021 12:51 pm You can bet the winning bid waived the appraisal.
I'd like to think that. But with the threads discussing how bias can creep into the process and the selling agent not showing us the signed copy from his sellers that they were presented our offer my mind wanders to darker corners. Hard for me to believe someone would advise their client to accept a lower offer. Doesn't seem very prudent. But who knows.
investnoob
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Re: Making offer well-over asking price?

Post by investnoob »

The neighbours on either side of us sold their houses, in the last year, for about $100,000 over asking. That is about 20% over the list price. Bidding wars are common here now.

Not sure if this helps you.
GoneCamping
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Re: Making offer well-over asking price?

Post by GoneCamping »

You said you're not stretching really so that helps. What you didn't say is whether or not you are also selling a house in this hot/insane market. That makes a big difference as it usually equates to it being largely a wash in that case. You buy high but also sell high, conversely if you are in a position where you have to sell low or want to buy low it's again usually a dual transaction in the same market so a wash. Buy and sell high, or buy and sell low.

If you are not selling and this is your first home purchase, or you are getting back into the market, just be sure you are financially comfortable with whatever you offer. And as others have said be sure you can afford a market downturn (you can as long as not upside down with a mortgage, see my comment above about selling low...), and can afford mortgage payments should your income be lost for a period.

We can't time the RE market anymore than we can the stock market and shouldn't try to IMO. I've seen people waiting to buy around here (PNW) because the market was too overheated, or so they thought. One couple we know decided to wait it out because the market was too hot and that was a few years ago now; it's only gone up since then by a huge margin and meanwhile they're still paying out rent and in a much worse spot for buying now.
rich126
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Re: Making offer well-over asking price?

Post by rich126 »

I have no idea why anyone would buy right now. I put this into the same category as people piling into the ARK funds or tech stocks, FOMO.
Yeah, someone is bound to say "well it is different this time with the new economy." I don't think so.
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skierincolorado
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Re: Making offer well-over asking price?

Post by skierincolorado »

Just remember in the future the asking price has no meaning whatsoever. What matters is comps and appraisal and how much other people are willing to pay. I've made multiple offers 5-8% over asking and waiving appraisal and lost. Very glad we finally got an accepted offer just before the market took off.
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scwed
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Re: Making offer well-over asking price?

Post by scwed »

Make the highest offer you can afford (of course check prices of recently sold similar properties in the same area to get some good ideas on the going price), and DO NOT remove the appraisal contingency. In a highly competitive market/area, to be highly competitive and hopefully get the property, you may add some terms indicating that you would be willing to cover $xxK over appraised price (many properties are sold over appraised price in hot areas), and/or remove the loan contingency (do this IF and ONLY IF you have checked w/ your loan officer and they can guarantee that you will get the loan w/out any issue) to make your offer closer to a cash offer. Check w/ your Lender to see if they could close the loan in less than 3 weeks and if so, offer that as well to make your offer as close to a cash offer as possible. Your biggest competitor is the CASH buyers and short escrow time. So hire the best Buyer's agent to negotiate and put you in the best position in front of the Seller & Listing Agent.

Good luck!
gubernaculum
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Re: Making offer well-over asking price?

Post by gubernaculum »

justsomeguy2018 wrote: Sat May 15, 2021 10:56 pm Housing market is insane here (maybe everywhere). Homes in a hot neighborhood sit on market only a few days and will have multiple offers.

We found a house we love (finally) and want to be sure our offer is the winning bid. Home is fantastic/appears popular (flagged as a "hot home" and we expect a bidding war (multiple offers confirmed, final offers due at deadline).

We are prepared to go well over asking price (home was listed underpriced compared to comps). The bid is still well within our budget and we're not "stretching" really.

Is this a dumb move, to get our perfect home? Always worry about a "bubble" or grossly overpaying vs other bids. We are current homeowners, so if we sell our home quickly, I figure if we are in a bubble it will be kind of a "wash", since we will hopefully have gotten a bubble price for our home as well (but who knows).
Sounds like you like the home, you have the money and we live in competitive times. Go for it!!
rockstar
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Re: Making offer well-over asking price?

Post by rockstar »

ImUrHuckleberry wrote: Wed May 19, 2021 8:28 am
rockstar wrote: Tue May 18, 2021 10:48 pm Home prices are starting to drop.

Good luck. I made this mistake once. I will never make it again. And I'll never pay more than 20x rent.
Does that mean home price =< 20 times estimated annual rent of same home? Is that some kind of standard ballpark figure people use when trying to determine a fair price?
Usually, if you're paying more than 20x rent, it makes more sense to rent than own. The rule of thumb is to buy at 10x and sell at 20x. Obviously, you need somewhere to live, so even if home prices go over 20x, it doesn't mean you must sell.
portfolio123
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Re: Making offer well-over asking price?

Post by portfolio123 »

Sorry to be a bit off-topic here (albeit related) - for escalation clauses:

(1) How do you know that you don't wind up overpaying? If I say I'm willing to pay $1,000 above highest offer up to $500,000, and they come back and say "you won at $495,000" - how do I know that the next lowest offer wasn't $475,000 and not $494,000?

(2) If there are two offers with escalation clauses, I guess it just defaults highest cap of the escalation clause? In similar example to above, if I'm willing to pay $1,000 above highest offer up to $500,000 and another buyer is willing to pay $1,000 above highest offer up to $505,000, the highest price then essentially defaults to $501,000 (assuming just two buyers in this example).
protagonist
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Re: Making offer well-over asking price?

Post by protagonist »

portfolio123 wrote: Wed May 19, 2021 10:57 pm Sorry to be a bit off-topic here (albeit related) - for escalation clauses:

(1) How do you know that you don't wind up overpaying? If I say I'm willing to pay $1,000 above highest offer up to $500,000, and they come back and say "you won at $495,000" - how do I know that the next lowest offer wasn't $475,000 and not $494,000?
My understanding:

You include in your offer that they have to show you the offer that was rejected. I have thought about how an unscrupulous seller might get a friend or relative to make a bogus offer to push the price up....I suppose that is possible....but I would also think that an honest realtor would not stand for such deception since their reputation (and possibly career) would be at stake.
(2) If there are two offers with escalation clauses, I guess it just defaults highest cap of the escalation clause? In similar example to above, if I'm willing to pay $1,000 above highest offer up to $500,000 and another buyer is willing to pay $1,000 above highest offer up to $505,000, the highest price then essentially defaults to $501,000 (assuming just two buyers in this example).
Well, assuming there was an offer of $500K on the table and your offer was $1000 more, I would think that your offer would then register as $501K and the other buyer would get it for $502K....I suppose it would depend on the wording (whether you were willing to pay $1K above 500K or you were not willing to pay over 500K). If you were not willing to pay more than $500K total, then the other buyer would get it for $501K (all assuming if the seller's only consideration was final offer price- your offer may have other contingencies more desirable to a seller than making the extra $1K profit so you may still get the sale).
disclaimer....I am not an agent so others may have better info.
Last edited by protagonist on Thu May 20, 2021 6:17 am, edited 4 times in total.
protagonist
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Re: Making offer well-over asking price?

Post by protagonist »

rockstar wrote: Wed May 19, 2021 7:04 pm
ImUrHuckleberry wrote: Wed May 19, 2021 8:28 am
rockstar wrote: Tue May 18, 2021 10:48 pm Home prices are starting to drop.

Good luck. I made this mistake once. I will never make it again. And I'll never pay more than 20x rent.
Does that mean home price =< 20 times estimated annual rent of same home? Is that some kind of standard ballpark figure people use when trying to determine a fair price?
Usually, if you're paying more than 20x rent, it makes more sense to rent than own. The rule of thumb is to buy at 10x and sell at 20x. Obviously, you need somewhere to live, so even if home prices go over 20x, it doesn't mean you must sell.
I don't understand this. If sellers are selling at 20x going rent, how could you possibly hope to buy at 10x going rent (half the sales price)? That's a huge gap.

And do others here agree that 20x prevailing rents is a rough ballpark cut-off for deciding whether it is financially better to rent or buy?
Carl53
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Re: Making offer well-over asking price?

Post by Carl53 »

Last summer made an offer of about 8% above asking price with an escalation clause that potentially could have added almost another 10%. Was turned down with no chance to reconsider because offer was made with the realtor including what she called a typical one week inspection period. Successful buyer was required to up their offer to match my original offer but not the escalation, but supposedly did not require an inspection period. I was subsequently told that the buyer did not want to mess with negotiations or delays. Given the delays and $$$ renovating the place we ended up with I should have bid another 25% higher.
Ramjet
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Re: Making offer well-over asking price?

Post by Ramjet »

RickBoglehead wrote: Sun May 16, 2021 6:27 am Irrational Exhuberance

'Nuff said.
That comment did not turn out to be true until years later

If you need to buy a house I doubt you have the luxury of waiting that long
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RickBoglehead
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Re: Making offer well-over asking price?

Post by RickBoglehead »

Ramjet wrote: Thu May 20, 2021 7:44 am
RickBoglehead wrote: Sun May 16, 2021 6:27 am Irrational Exhuberance

'Nuff said.
That comment did not turn out to be true until years later

If you need to buy a house I doubt you have the luxury of waiting that long
If someone needs to buy a house, you are right.

If someone WANTS to buy a house, in markets that have dramatically changed in 2021, they can choose to wait.

Right now we're probably going to wait on buying a retirement house, then will have to decide if we want to sell our current home in this irrational market, leveraging the current environment, and simply rent and wait.
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