Kalgoorlie 
While property prices have levelled off in Australia this year, limited stock means there is still competition amongst buyers, especially for quality apartments and family homes that are move-in ready.
If you haven’t made a purchase in a while and you have pre-approval in place, you may be wondering how much money to put forward. It’s tempting to come in higher than the asking price so the vendor will accept and you’ll avoid a bidding war, but is this the right move?
The truth is that sometimes it can be, but here are the do’s and don’t around making a high offer:
Why bid over the asking price?
What’s interesting about property is that there is never a fixed price. The final cost comes down to what is agreed on by the buyer and seller, with the guidance of any property professionals they loop into the process (real estate agents included).
The asking price, also known as the listing price, is the figure vendors set as their goal outcome and one they believe is realistic. This doesn’t mean the home will sell for this amount.
The first reason for making an offer above the asking price is of course to increase your odds of winning the home. You might do this because you know there are other interested parties and you want to keep them out of the running. If the home has excellent potential to increase in value and you can afford the loan, it should be okay to pay a little more than the asking price.
The other reason to ‘go high’ is with the hope that by getting in early, you will discourage the vendor from seeing who else may be around the corner. It can help get the deal done faster and if you value your time and have been repeatedly missing out on other homes, this move can make sense.
For example, you may have missed out on a few homes that have been advertised online but then received a phone call from an agent saying they have a property coming onto the market due to a separation. In these circumstances, people are usually looking for a quick, no-fuss sale. If you know they want at least $950,000 you might take a look at the home,
organise a building inspection then put forward an extra $10,000 so the property doesn’t go to market and you can secure it without other people putting their offers in.
The drawbacks of offering above the asking price
The risk of putting in an offer over the asking price is that you may spend more on the home than it is worth. This could leave you with a tricky problem if something happens and you need to sell after only a couple of months or years.
Interestingly enough, overpaying comes with more complications than simply adding to your mortgage payments.
For one thing, lending institutions will only approve a loan if they feel the property is worth that amount. Even if you have pre-approval, if you are asking for a loan that significantly exceeds the appraised value of the property, then lenders may get cold feet.
Then there is the fact that you could even be affecting the property market around you. When you pay a higher price, you set a precedent and properties in the area suddenly get more expensive.
And before you make a high offer, don’t forget to factor in the ongoing costs of owning the home. Bidding high just because you love the place won’t work out if you can’t afford the higher mortgage as well as the running costs.
Making your offer
As for how much above the asking price to offer, every property is different.
Many agents suggest you only offer between 1 and 2 per cent more than the asking price at a time. That may not sound like much but keep in mind if you are bidding on a $800,000 home, 1 per cent is still $8,000. At 3 per cent, it becomes $24,000. If your bid starts a ‘war’ and you jump up by too much at a time, the final outcome may swing too far in the vendor’s favour.
It is important to buy with your head and not your heart. Always do your research so you know what price range you should expect to pay. You don’t want to make an offer that goes too far above the actual value of the home in relation to its size, location and condition.
Before you make an offer, speak to the selling agent. They want to achieve the best outcome for their client but they will be able to provide a realistic figure for you to put forward based on the home and the number of interested buyers.
Need help to figure out your approach as a buyer? Contact Professionals Platinum today.
