What to know when offering above asking price


Inthis hyper competitive market, where a seller can find herself with severaloffers within days of listing a property, there are several strategies you canuse to put your offer in the best position. Of these, the most obvious is tooffer more money than is being asked for. If you are buying cash, then this isvery straightforward; however, if you are using a loan, then there may becomplications.

Whenyou get a loan for a property, the lender must order an appraisal on thatproperty. This is done to determine the value of the property- the lender doesnot want to loan you more that the property is worth, because if you default onyour payments, then the lender takes possession of the property. If its valueis too low, then the lender would not be able to recoup their losses; so, ifthe property appraises below the amount of the loan (the offer price), they arenot going to loan you that full amount. Unless you can convince the seller todrop the price from what she accepted, this could cancel the whole transaction,unless you are prepared to pay the difference in cash.

Myadvice is this: when you are making an offer that is significantly above askingprice, make sure you have the cash funds necessary to pay the differencebetween the purchase price and the appraised value. For example, say a home islisted for $150,000 and is in a competitive area. You really want this house,so you offer $160,000, financed with a loan, and the seller accepts. The lenderthen sends a professional appraiser to determine the value of the property,which comes to $155,000. The lender says that they will only lend you up to theappraised value of the property, $155,000.  If you have $5,000 in cashfunds, you can take the loan of $155,000 and pay the difference to the sellerin cash. If you do not have those funds, you will not be able to by theproperty.

Agood real estate agent will always talk you through this when you are makingthis kind of offer. If you feel interested in buying, or selling, please reachout to me!