Overbidding in a Hot Real Estate Market

A Hot Real Estate Market Requires a Different Strategy

If you’ve tried to buy a home recently you’ll know what I’m talking about when discussing a hot real estate market. Because it is so competitive most buyers are being encouraged by their real estate agents to come prepared to make an offer when looking at houses. These offers often exceed the list price.

Hot Real Estate Market buying strategies

Gone are the days when you could leisurely look at various homes and take your time to choose which one you want. If you don’t have an offer in hand you’ll certainly lose it to the next person who has done their homework and is more prepared.

The Perfect Storm

This hot market has been brought on by low inventory and even lower interest rates. The increased demand and limited inventory have resulted in many homes going under contract at prices above what they are listed at by eager buyers who don’t want to lose out on a deal.

As a result of the limited inventory, some buyers are making offers on homes that far exceed the list price, hoping that the sellers will accept their offer. Sellers like this because they hope to get as much as they can for their house but there are drawbacks to this strategy.

There is no guarantee that the house will appraise for the high offer which can result in wasted time for everyone involved. Many times the appraiser gets blamed for “killing the deal” when in fact the deal was dead from the start.

Because this scenario has become more frequent in today’s market I thought I would share some things to consider from an appraiser’s perspective. By being aware of these points you will be more informed to make an offer that gets accepted without any appraisal issues.

Tips For Winning a Bid in a Hot Real Estate Market

1) Know the market – It is more important than ever for buyers to know the market. By “know the market” I mean you should be aware of the general price ranges for the area, especially the upper end of the price range.

If you are knowledgeable about what the competition is asking, and what homes have recently sold for, you will be better prepared to make a reasonable offer on the home you want.

2) Be prepared to pay the difference – Not all appraisals come in at the contract price and it’s not always the appraiser’s fault. If you want to bid higher than the list price you may need to make up the difference out of pocket.

You should let the seller know that you will provide appraisal gap coverage. This is a guarantee to the seller that you will make up the difference should the appraisal come in below the contract price.

3) Don’t go on hearsay – Make sure that you are working with accurate information. You may hear that someone paid a certain amount for the same or similar house down the street but it’s important to check it out.

If you don’t verify the price of the comp and try to use that information to make an offer on the home of your dreams you could offer too much and end up risking the sale with a low appraisal.

4) Have your financing lined up – I mentioned previously that it’s very important that you should be prepared to make an offer on the spot. The best way to do this is to have your financing lined up so you can pull the trigger when you need to.

If a buyer knows that you have financing to back up your offer they may accept yours over someone else that still needs to get approved for their financing.

5) Request a CMA from your agent – A CMA is typically done by the listing agent to help price the home based on recent and similar sales. They are also helpful for buyer’s agents because they can help the agent in guiding the buyer in making a reasonable offer.

Making an offer in a hot market requires more of a strategy than just throwing out a pie in the sky offer. It requires the buyer and their agent to be informed with accurate market data so their chances of winning a contract and getting a successful appraisal are increased.

Conclusion

Can you think of another strategy that I have not mentioned about how to successfully make an offer in a hot real estate market? If so leave a comment below and as always, thanks for reading.

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Comments

  1. I don’t know about your area, but this is about the most competitive market we’ve ever had in Sacramento. The stats prove it and it’s no joke out there. Offers were up 108% from last year at the same time too. Astounding.

    • It is the same here, Ryan. I saw more contracts over list price last year than I have ever seen.

      • Deborah Warren says

        Are the appraisals lining up with these offers?

        • Some do, some don’t. In today’s high demand and low inventory market, it is not uncommon for an offer (or multiple offers) to come in higher than the list price. The problem arises when it is so far above that there is no data to support the contract amount. As I stated, some offers are higher so the buyers can get the listing but it is not based on any market support and that is where we have problems.

Trackbacks

  1. […] by other buyers, no pun intended. I discussed some of what was going on in a recent post about overbidding in a hot real estate market if you want to check that […]

  2. […] Overbidding in a Hot Real Estate Market – Birmingham Appraisal Blog […]

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