Just this week, a client went up against 25 other prospective buyers for a home. That’s right. Twenty-five buyers placed bids on one house! My client’s offer was ten percent over list price and included a contingency to cover a portion of the difference if the appraised value was less than the purchase price. The short of the story is we lost.
In the hours and days that followed, there was plenty of time to second guess strategy and details. Should we have offered more money? Did we include enough coverage for a short appraisal? Maybe waiving the right to an inspection would have tipped the scales in our favor. To the casual real estate follower, I know this sounds crazy, but today’s buyers and seasoned real estate agents know all too well that this situation is the norm rather than the exception.
The more complex question is whether or not the buyer was going to pay too much. In today’s market, one which is heavily weighted towards sellers, buyers are forced to come to fast conclusions. Beyond economics, deciding on a home and how much to pay is a personal choice, one which requires weighing location, layout and personal taste among many other factors. Buyers are now seemingly placed behind the eight ball, leaving them to take under consideration a host of other items.
CURRENT VERSUS FUTURE VALUE
Let’s say you pay more for a house than any ever sold in a neighborhood. It’s easy to jump to the conclusion at the moment that you overpaid. On the other hand, you are establishing the bar for future sales. With each nearby transaction that follows, your home’s value evolves, and assuming price trends continue, you will reap rewards over time. One of the most important questions you must ask yourself is how long you plan to stay in one place. If forced to sell in the near term, recouping costs might be difficult. If, however, you are going to live in a home long term (for at least three years), there’s a good chance you will earn appreciation that more than makes up for your expenses. Talk with your real estate agent about appreciation rates to determine what is a reasonable expectation in your target area(s).
DOES THE HOME FIT THE MAJORITY OF YOUR NEEDS
It’s one thing to pay top dollar for the perfect home. It’s an entirely different story if you need to make major improvements for it to work for you. That being said, you will likely need to make compromises. Your budget and timing won’t change this fact. Be honest with yourself about the big picture. Take into account the initial cost, all expenses associated with your purchase and what improvements are needed to bring the home up to your standards. When you add all of these things together, is the house still the one for you?
THE OPPORTUNITY CURVE
When making decisions, there lies a point where the winning cost intersects with the losing cost. Multiple offer home-buying situations are no different. Think long and hard in order to determine where your maximum purchase price falls on that spectrum. Do your best to remove emotions and allow logic to prevail. When all is said and done, you should be happy if you’re lucky enough to be the winning bidder. If it doesn’t go your way, it’s also important to have peace knowing it just wasn’t meant to be.
LOOK AT THINGS FROM THE MACRO PERSPECTIVE
To help form conclusions, combine all the things discussed here in a virtual pot, turn up the burner and see what rises to the top. Also, lean into the advice of the professionals you’ve entrusted to guide you through the process. Coupling their expertise with your thoughts and assumptions will ultimately lead you to the decision that allows you to sleep well at night knowing that you didn’t pay too much for the house.