Getting Outbid? Don’t Get Too Hung-Up On Price
Vice President, Mortgage Lending
Everybody wants a deal. As they should, but don’t let getting a “good deal” prevent you from purchasing your dream home. Of course you have to feel comfortable with your payment and be able to afford the home, but I am referring to losing a home because you were out bid by a few thousand dollars or didn’t offer what the seller is asking for. This is even more important in a market where interest rates are on the rise. Paying more for a home today could actually have a lower monthly mortgage payment than a much less expensive home next month as rates continue to trend upward.
First things first. I’m not referring to a home that’s been sitting on the market for months. Bid whatever you want on that home and you’ll likely be able to find a fair compromise with the seller during the negotiation process. This article is geared towards people looking to buy that new listing that’s in a good location that is going to get multiple bids the weekend it hits the market. What’s the right amount to bid in a best-offer situation? Less than asking price? Asking price? Higher than asking price?
Talk to your lender and have him/her show you the difference in your monthly payment at various price points. Then talk to your realtor and have them pull sales comparisons to make sure your making an educated offer at a fair valuation. Then determine how bad you want the home and how long you see yourself living there. Because in a competitive market/location, it’s typical for values to rise. So you’ll likely feel better about making that strong offer when the return on your investment is much higher down the road.
You likely won’t overpay for a home. There are contract items that will prevent this from happening. For example, if you contract on a home at $420,000 but it appraises out for $400,000, you have an out. You also have ammo to go back and renegotiate with the seller. Appraisals are done by using recently sold homes comparable to the one you are purchasing, and there is a lot more data in these reports than there used to be. If the home doesn’t appraise out, you are protected by the language in your contract to cancel.
What’s the difference in payment? Assuming a 20% down payment on a home at $420,000 and $400,000, the difference is about $80/month. So do you love the home enough to pay an extra $80 per month? Is it worth losing the home for the cost of filling up your gas tank? Maybe, but most people home searching at that price point can afford the slightly higher payment. What people are forgetting to take into consideration are interest rates. People are so caught up on the dollar amount that what they fail to realize is that their monthly payment would have been lower at $420,000 today then at $400,000 next month if rates go up 0.5%. The longer you wait for the perfect home at your set purchase price, the higher your payment could go and lower your purchasing power becomes.
Are you somebody that has lost in a bidding war? Would you like me to show you a loan comparison for a specific property you are going to view this weekend? Call me at 708-531-8324 or message me today. I’m happy to provide you with a detailed loan comparison at multiple price points. Don’t get me wrong, price is important, but I encourage you to put more weight on payment than price.