One tried and true method for standing out among hordes of eager home buyers is to offer more money than the asking price. It's a tactic that makes sense: When a well-priced house in a great neighborhood goes on the market, you'll need to do something to get the seller's attention. Extra cash could be just the thing to make yours the winning offer.
But before offering more money than the sellers are asking for, buyers should consider several factors, says Michele Lerner, a real estate expert and author of "Homebuying: Tough Times, First Time, Any Time."
“First, you must be completely comfortable with the larger monthly mortgage payments,” Lerner says. “Before you make a higher offer, you need to find out exactly what the financial impact would be."
Additionally, she says, you need to be honest with yourself about how much you want the house.
“Sometimes buyers get caught up in the competition and don’t realize that they’re spending more than they want for a house.”
Disadvantages of offering over asking price
While offering above the listing price can help you outbid the competition, there are also some potentially negative outcomes.
“You could write this crazy high offer, and it turns out you had no competition and could have purchased the home at the original asking price,” says Chantay Bridges, a REALTOR® with Real Estate Professionals World Enterprise Marketing in Los Angeles. “And you could be paying more than what it’s really worth.”
How much over asking price should you offer?
If you decide to offer over the asking price, determining just how much over can be challenging.
“There really is no magic formula,” says Rick Snow, a broker with Exit West Realty in El Paso, TX. “It would depend on the market.”
Your real estate agent can help you come up with a competitive offer.
“They are the ones in a position to truly understand the market," says John Powell, chief development officer of Help-U-Sell Real Estate. And the concept of "sweetening the deal" really does take on a different meaning in different regions.
"In Arizona it might be 5% over; in California it may be 10% over asking,” he says.
Sometimes you need to take a big step back and try to see the bigger picture—and it isn't always just about price. One seller, for example, might want a strong buyer who can close escrow quickly above all else. Your real estate agent can help you navigate this, and help you determine the buttons to push in getting your deal accepted.