Should you go over asking? In a competitive market, where home inventory is at a shortage, the strategy to go over asking can seem very tempting.
Here are 3 things to consider before going over asking in any property.
1. Run your Numbers:
Just because a house sold for over the asking price doesn’t mean it was a justifiable price. Your agent should check the market for other active properties currently listed to make sure you don’t pay over and beyond what the characteristics of the home are. The last thing you want is a home with a loss of equity if you decide to sell your house one year from now.
2. Be Cautious About Overbidding:
If you are relying on financing to close your deal, then highball offers may get you into trouble. To get a mortgage, and to determine the size of the loan, you will need to get an appraisal of the property for the bank. The appraiser’s opinion of the home’s worth will be based largely on comparable sales. If there are no comparable sales to support your offer price, the home will not appraise. This means that the bank won’t loan you the full amount of your offer. Instead, it will only offer you the home’s appraised value. Ask yourself: can you afford to cover the out-of-pocket difference?
3. Determine your Max Budget:
Set a monthly budget to determine what you can comfortably pay. For example, if you can just barely afford a $1,500 monthly mortgage, anything beyond that is out of your comfort zone. You can use a mortgage payment calculator to estimate how large of a mortgage payment you can afford on your monthly budget. When calculating your home buying power, remember that your mortgage should only account for 30% to 40% of your monthly take-home pay.