In a hot market, houses are often selling for more than the asking price. Often, sellers will receive offers above their asking price. However, is the highest offer the best? Not always. Most buyers need a mortgage to purchase a house, which will most likely require an appraisal. As a seller, you should know if a potential buyer has the ability to pay more than the appraised value. If the house appraises for less than the contract price, your deal can come to a screeching halt.
As a buyer, it’s important to understand the limitations of how much you can borrow to purchase a house. The bank wants to make sure the buyer can afford the house, and confirm the house is worth what the buyer is paying. One way to write a competitive offer in a hot market is to include appraisal gap. Appraisal Gap means the buyer is promising to pay a certain amount over the appraised amount, in the event the appraisal comes in lower than the agreed upon purchase price. This requires the buyer to have enough cash to pay for their required down payment, closing costs, PLUS the appraisal gap.
Why pay over the appraised amount?
Value isn’t just what a house costs. In fact, most any 2 people would have different opinions of value for the same house. Would you be willing to pay $10k more than the appraised value if you found the perfect house in the perfect neighborhood? If not, consider that $10k extra will cost you between $50-$75/mo (depending on rates). People buy the payment, not the price. Many times, interest rates make a bigger difference on the monthly payment than the price. That means waiting for house prices to drop before buying could end up costing you more.
Obviously, you need to be careful to not get in over your head. Regardless of how much you like a house, it can be risky to overpay if you’re not certain to keep the house for at least 5-7 years, or if it’s at the top of your budget.
Thinking of buying, selling or investing in real estate? Feel free to reach me below.
Justin Rollheiser – REALTOR®
Keller Williams Realty | Diamond Partners, Inc.
13671 S Mur-Len Rd | Olathe, KS 66062
Mobile 913-800-7653
Office 913-322-5878
Comments or Questions?