How much over asking price should I offer on a home?

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When making an offer on a home, over 50% of buyers offered above the list price earlier this year. This isn’t all that surprising considering how competitive the housing market has been.

While no one wants to overpay for a home, it can be necessary to put in a higher offer to compete with other people looking to buy the home. You may not have to offer that much over the asking price to win a bid — on average, offers were 2.9% above list price in February and 1.6% in June.

But when home prices are high, offering to pay even a little more than the ask price can put a strain on your nerves and bank account. A competent real estate agent should be able to guide you as to how much above asking price you should offer, but you can also stand out to a seller by waiving contingencies or making a cash offer. (Orchard can help you do both.)

Deciding how much to offer on a house

When the competition for houses is steep, it can be very tempting to make an offer over asking price when you fall in love with a home. While the desire to walk away victorious in a bidding war is understandable, it’s best to pause before you make any offer — let alone one over asking price — to determine what you want to potentially pay. 

How much you should offer on a house can depend on any of the following:

  • Market conditions: In a buyer’s market, when there is an ample supply of houses and low demand for them, you might be able to get away with making a low offer below asking price. The same can’t be said in a seller’s market, where there are few houses and many buyers competing for them; you’re more likely to make a higher offer in these situations.
  • House condition: You may have better luck with a lowball offer if the house in question is in poor condition or has been listed for a months without receiving any offers or showings.
  • Contingencies: Depending on market conditions, contingent offers can be less appealing to sellers. Waiving contingencies can help make your offer more competitive.
  • Financing: Cash offers are more enticing to sellers, which can help the buyer to stand out without offering above the ask price. 

Unless you plan to make an all cash offer, get preapproved for a mortgage loan before you start house hunting. That way, you know exactly how much the lender is likely willing to lend you and can get a better idea of how high of an offer you can make. If making an offer over asking price pushes you past what you can afford to pay, then you know it’s best to walk away. 

In some cases you may find that even if you love a home, making an over-asking offer isn’t the right move to make financially.

How much over asking price should I offer?

When there are multiple offers on a home, you may need to make one above the list price to have a shot at winning. There’s no magical percentage to calculate how much to offer if you decide to go over asking price — a few thousand dollars or 1% to 2% above the listed price can be a good place to start

When you start small, you're less likely to end up making an offer you can’t afford —  especially if there are other interested buyers involved, which could lead to multiple rounds of bidding and eventually an even higher final price. (Learn how to win a bidding war on a house.)

However, it’s also possible that another buyer will outbid you if your offer isn't big enough. In an especially hot seller’s market, when houses are scarce and competition is fierce, some potential buyers may go above and beyond the asking price by as high as 10%, as they did in February 2022 according to the NAR.

The market is continually changing though, so the best thing you can do when crafting your offer is to ask your real estate agent, who will be your trusted negotiator during the homebuying process. An experienced realtor should have information on what comparable homes in the area sold for to give you a clearer picture of what an acceptable offer looks like. 

Made your offer? Find out how long it takes to hear back from the seller.

Questions to ask when offering above the ask price

Beyond that, here's what to ask yourself when deciding how much more you should offer on a home.

  • What is the highest offer I can afford to make?
  • How much are similar homes in the area selling for?
  • Would my offer align with the true market value of the home?
  • How long do I plan to live in this home?
  • Will I need to make repairs or renovations?
  • How disappointed will I be if I don’t get the home?
  • Do I love the surrounding neighborhood as much as the home?

Take your time to answer these questions and you’ll eventually get a feel for how much more over asking price is too high or whether it’s worth spending extra to secure the home you really want. 

The risks of making too high an offer

Being open to paying more than a home’s list price may seem like a necessity in a competitive housing market, but doing so comes with some additional risks that potential homebuyers should consider. 

High offers lead to appraisal gaps

When you make too high of an offer on a home, there’s a chance the appraised value won’t match the sale price. A mortgage lender is only willing to lend you what the appraiser deems the home to be worth, so if you want to secure a mortgage loan, you have to make up the difference between the sales price and the appraisal value on your own. (This is in addition to your down payment, so you may need to have a lot of cash on hand to make this work.) 

If you can’t afford to cover the appraisal gap, you could lose money

When you can’t afford to make up the difference, you may lose your earnest money deposit. This all depends on the timing of when you withdraw your offer and the contingencies included in your contract. One way to avoid this is by including an appraisal contingency in your contract that allows you to back out of the sale. 

You could pay over fair market value

When you really love a home it’s easy to say “we’ll figure it out,” but making an offer well over asking price can cause financial strain. You might end up overpaying for the home, which can put you at a disadvantage if the market takes a downturn or corrects itself. 

For example, if you need to move in a few years and housing prices have dropped in your area, then you may have to sell the home at a loss or may struggle to break even.

Making an offer over asking price is one thing, but making an offer that is significantly higher than the fair market value can make it harder to sell your house in the future if you want to make a profit. (If this is your forever home you don’t have to worry too much about this as the home will likely rise in value over the decades.) 

When you should and shouldn’t offer above the listing price

Once it’s time to make an offer on a home, only you can decide what makes sense for you and your family financially. While these guidelines can help you determine when you should and shouldn’t make an offer above the asking price, your unique personal and financial situation may guide you in a different direction. 

Bid higher when:

  • You can comfortably afford it.
  • The home checks off all the boxes on your wishlist.
  • You see yourself living in the home for many years.
  • The home is move-in ready, not a fixer upper.

Don't bid higher when:

  • The appraised value comes in lower than expected and you can’t afford to pay the difference.
  • The home requires expensive maintenance or repairs.
  • You aren’t certain this is your forever-home. 

At the end of the day, you need to have a clear budget in place before you start house hunting. There’s no need to rush into a homebuying decision. If you’re feeling too pressured to make a high offer, you can walk away. 

What if you can’t offer above the list price?

There are other ways to make your offer on a home more competitive if you can’t afford to go above the asking price, like by not making a contingent offer or agreeing to the seller’s ideal closing timeline. 

If you’re looking to stand out in a competitive market, Orchard can turn you into a cash-buyer and so you can win the bidding war on your dream home. We can guarantee the sale of your old home, so it doesn't hold you back from buying the new one. Get started with a free evaluation.

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