If you’re in the market for a new house, you might consider entering a bid above the asking price. For example, if the home is listed at $250,000, you could put in a bid of $260,000.
Strategically, this move could make sense. The advantages are obvious; a higher price means your offer will be much more attractive to the seller. It’s an easy way to stand apart from your competitors and a tactic you can use to secure the property.
The downside, of course, is that you’re committed to spend extra money to make it happen. There are good reasons and bad ones to bid above asking price. You should familiarize yourself with both before proceeding.
Good Reasons to Bid Above Asking Price
These are some of the best reasons to bid above asking price:
- Bidding above asking price has become the norm. Under certain economic conditions, bids above the asking price become the norm. When inventory is low and demand high, prices tend to get pushed upward. Sellers may anticipate this, and list the property at a higher level, but aggressive bidders will push that number even higher. If you anticipate lots of high bids on an attractive property, you’d be smart to boost your offer in order to compete.
- The house is seriously underpriced. You may also be interested in raising your bid for a property that’s clearly underpriced. Some sellers strategically underprice their home, hoping to attract more attention and more offers that way. Others may not grasp the value of the asset they’ve placed in a hot market. In any case, you can comfortably bid more than asking price in this scenario, because you’re still likely to be close to the actual value of the home.
- This is your dream house. If this house has everything you ever wanted, you definitely should bid more for it. There’s just one big caveat: Make sure you’ve defined what qualifies as your “dream house” before you ever see it. Write down a thorough checklist of all the qualities that would put a structure into “dream house” territory – and see if you can check all of them off. Otherwise, your emotions may cause you to overestimate the true value of this property.
- You’re having trouble getting bids accepted. How long have you been bidding on homes? If you’ve been bidding at or near asking price for months and you haven’t made any progress, it’s probably past time to step up your game. This is largely dependent on how competitive your local real estate market happens to be.
- You have a pressing need to move. You may also want to bid more than the asking price if you’re in a hurry and have to move soon. Nobody wants to be in this position, but you might not have had a choice.
Bad Reasons to Bid Above Asking Price
You should avoid bidding above the asking price if these are your primary motivators.
- You have plenty of money. Just because you can afford a higher price doesn’t mean you should pay it. You might be able to afford a $50 bag of apples at the local grocery store, but that’s a terrible deal and a bad financial decision; you’re better off going somewhere else where you can find them cheaper. Be sure to weigh the property’s actual value.
- You’re pre-approved for more than asking price. Pre-approval letters function as proof that you can afford homes up to a certain value, at least in the lender’s eyes. This is not a signal that you should bid the maximum amount for every property you see.
- You want to outcompete your peers. If you get embroiled in a bidding war, it’s natural for your competitive side to surface. You feel pressure to outperform your peers for the sake of protecting your ego or reaching victory. These are natural feelings, but they shouldn’t dictate your financial strategy.
- You’re emotionally attached to this property. Don’t let your emotions hijack your decision-making ability. When searching for a home, you might feel an instant bond with a given property – but that’s not a good reason to raise your bid.
- You’re tired of looking at houses. If you’ve been shopping for a long time, you might feel so fatigued you’re willing to settle for anything. Don’t let exhaustion lead you to a bad financial spot.
Alternatives to Bidding Above Asking Price
Bidding an amount above asking price isn’t the only strategy you can use to make your bid more competitive.
You can also:
- Make an all-cash offer. All-cash offers are attractive to sellers for a variety of reasons. Some sellers may accept a substantially lower bid if the offer is all in cash. This option may not be available to you, though.
- Put more money down. If you can’t make an all-cash offer, you might improve your financial position by putting more money down – and securing a reliable pre-approval letter.
- Waive (some) contingencies. Waiving contingencies is a controversial issue in the real estate business. It would certainly make your bid more attractive to the seller, but it could also leave you vulnerable and put you at risk of significant financial loss.
- Write a compelling letter. Sometimes, writing a letter to the seller could be the finishing touch that helps your bid stand out from a pile of competitive offers (as long as your bid is reasonable).
As for how far over asking price to bid … that’s entirely dependent on the situation. Your budget, the property’s original price, your level of competition, the property’s conditions, and dozens of other factors will come into play when you’re deciding. Be sure to consult with a real estate agent to make the best financial decision.
Not sure if you should bid above asking price for your next property purchase? Don’t worry. We’re here to help.
At Green Residential, we have a full team of dedicated real estate agents who can guide you through your financial decision – and help you end up with the house you’ve always wanted. Contact us for more information today!
Michael is Green Residential’s Vice President. He helps to keep the team organized and running smoothly. Prior to joining Green Residential, he spent 12 years working at Cadence Bank in the mortgage loan servicing department, where he specialized in loan audits, modifications, and bankruptcy-related issues for the mortgage portfolio.
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