List price overrated? This is what you can do to improve your odds! by Emerick Peace.

List Price Overrated?

This is what you can do to improve your odds!

By Emerick Peace

Recently, I read an article that justified buying a home for more than the list price. That’s ridiculous, but, still, there are people buying their homes above the list price simply because of the current market conditions. As such, is list price always overrated?

In the current market conditions (a seller’s market), prices for homes are most likely to be covered, and sometimes by a very large margin. The seller’s market, also called a ‘hot market’ is characterized by high demand but low supply volume making home prices soar by the month. This results in ‘bidding wars’ among desperate buyers which means at the end of it, a higher offer on a home will most certainly win the bid. In such cases, buying a home above the list price is justifiable, which is happening all around the country.

BUT, I WOULD CAUTION YOU!

If you are not entirely sure about your financial position at the time you intend to buy the property, it is best to hold off the thought of buying. No matter how bad you want to become a homeowner, do not offer above the listing price if you cannot afford it!

Additionally, the larger percentage of buyers in the market right

now are the ones relying on financing to secure their dream home. Highball offers in this case may get you on a road you might never recover from. And also, there are circumstances when the bank will reject to finance your project simply because of the risk attached to it. This happens when the bank cannot determine the appraised value of the property. In such a case, you can always appeal to the bank or the appraiser to get another assessment or ask the seller to accept the appraised value, which I highly doubt they will. If the two options are not viable, negotiate with the seller to reduce the price slightly and then make up the rest of the difference out of pocket or simply pull out if the deal.

Some markets are extremely competitive which makes the list price so astronomically high. In such cases, I would encourage you to use the escalation clause in the purchase offer. So what’s an escalation clause?

Basically, a seller asks $200,000 for his house. As a buyer, you write an offer that would increase your bid increment6ally to beat out other buyers. For instance, the clause could say that you will pay $1000 above the highest competing offer up to a max of $220,000.

It is a clever strategy but, I would also caution against it because there is a downside to it. In such an arrangement, an unscrupulous seller could be taking advantage of you by pretending that there is a higher offer. In addition to that, such an agreement can lead you to actually pay more than you would otherwise pay in a normal negotiation.

Lastly, just offer a higher bid! I think one of the worst, and most confusing moments for the buyer is really deciding when or not to make a highball offer on a home. But, the advantage of making a higher offer is that over the list price is that it nets your home. If you do not pay over the list price, more often than not that would mean missing out on your dream home. Still be very cautious because, in highly competitive markets, you may fall prey to manipulative tactics by sellers.

To close, if you decide to offer more than the list price, make sure to run your numbers by the agent or at least try to do some research into the market. Try to find out about comparable sales in the same area just to be sure that the list price makes sense.