Hey, Kyle here with winthehouseyoulove.com.
Let's talk about does overpaying for a home make sense?
So when you're looking at shopping for homes, you might be seeing homes that
let's say it's listed at $200,000, but it's a really competitive market.
A lot of people are bidding on that same home.
And you want to offer a little bit more to make your offer more attractive.
Is that a good decision?
We're going to cover that in this video.
So first of all, what this does is it's going to help you.
Wow.
It's going to help you win an offer.
All right.
Or at least stand out among other offers.
So the problem with buying a home, I guess not the problem, but the downside
to buying a home is it's not like you can go, like when you go to Walmart
and you go pick out something off the shelf, a home is in a market, meaning
that there are several other people who want the same house that you do, and
you're all competing for that same home.
So what this can help you do when you offer more than the seller
is asking for, this can help your offer stand out a little bit more.
Because if we think about the seller's mind, they want to walk away with
the most amount of money possible.
That's the main thing that they want.
So by offering more money, your offer becomes a little bit more attractive.
Now this really is only needed in a seller's market.
Okay.
If you're in a buyer's market, that means there are a lot of homes available and
there's less competition for these homes.
So you probably don't need to do this in a buyer's market.
In a buyer's market, you have some leverage to be able to maybe ask or
offer less than the listing price.
However in a seller's market, there are less homes and a lot more buyers.
So the sellers have the advantage and you're going to be competing against
other sellers for instance, in this market right now, when I'm recording this,
some homes are going, uh, they're being put on the MLS and then they're getting
like 10 to 15 offers placed on them.
So it's a really competitive.
All right.
So you going to want to do this when you're in a moment where you kind of
have like your back against the wall.
All right.
So if there are a lot of options available to you, then I would say, Hey, maybe we
don't bid over the listing price because you don't want to overpay for this home.
If there are five other homes or three other homes or two other homes that
are going to be good fits for you.
You really only want to bid over the asking price when you feel like
"we don't have any other option".
There's not a lot available out here and we really need to put in
our best offer here for this home.
Okay.
So a quick thing, this is a little bit new, but I'm going to introduce what I'm
going to call a CalmMoment, where we kind of shift from the facts of a video and
into how this affects us emotionally.
So it can be really difficult when you're in a seller's market,
because it feels like everything is speeding by you super quickly.
And it can feel really defeating.
I know people who are putting in 10 to 15 offers on homes and they still
can't find what they're looking for.
And if that's you just know that it's okay to feel discouraged and it's okay to
talk with other people about that and let your realtor know, let your lender know.
Hey, I'm just feeling really bummed about this.
See if they have any strategies on ways that you can move forward
with that, but it's okay to feel frustrated and it's okay.
Just take a step back as well, because it feels like everything
is kind of closing in because of the way that the market is moving.
And just to know, it's okay to say, you know what?
I think I'm going to take it from this madness for a little bit, recollect
my thoughts regain some energy.
And then come back in maybe in a few months.
It's completely okay to do.
Alright.
So let's really quickly talk about the benefits of overpaying.
Why in the world, what do you want to overpay for house?
Number one is to possibly cover closing costs.
So let's say that a home is $200,000 and your closing costs are, let's say
maybe $5,000 and you want a credit from the seller to pay those closing costs.
Well, you could offer $205,000 and ask for a $5,000 credit back.
Basically what you did is you financed your closing costs into
the purchase price of the home.
Also, this is going to help you compete against cash offers or
offers with better financing.
So again, think about to a seller.
What they want is they want the best the most money possible and
they want the easiest process.
So if you come in with a loan that's complex, in a seller's
mind, a complex loan is an FHA loan, a VA loan or USDA loan.
Okay.
They're not really complex loans, but to a seller, they might require a little bit
more time that they're not looking for.
So if you're competing against that or if you're competing against a cash offer,
but you have FHA, if they're both the same price, the seller might not accept it.
But often if you have, let's say a home that's listed for $200,000 and there's
a cash offer for, let's say $195,000 and you come in with a FHA offer for $205,000.
A lot of times the seller is going to accept the financing offer because
they were already prepared to maybe wait 30 days for financing and they
might go with the option to make more money even though you have a
less attractive financing option.
Okay.
What the strategy is for it's for people who are going to be
in the home mid to long term.
So if you're going to be in the home for a short period
of time, maybe don't over bid.
And we'll talk about this here in the next slide, but you want to find kind of
a break even period of you overbidding for a home, and then being able to recapture
that money, that way you don't overpay and lose out if you sell it in the short term.
So what we need to be careful though, it about is when you offer on a home,
that's not the end of the story, because if you're offering with financing,
a lender has to do an appraisal to back up the value of the home.
So again, if you have a $200,000 house and you say, Hey, we're going to pay
$210,000 for it, that's our offer.
The lender has to have an appraisal and the appraisal needs to say
$210,000 is the value of the home.
If the appraisal comes back and the appraisal says, Hey, it's
actually only worth $200,000.
The lender is not going to give you the extra $10,000 for that property, because
then they're in a risky situation.
The lender themselves would be kind of quote unquote underwater on the
mortgage and that's too risky for them.
So you're not going to be able to borrow more than the appraisal value
of the home with most types of loans.
So you need to have a plan for if you have a short appraisal.
So, if you do have a short appraisal, you're either going to bring money
to the closing table to make up the difference, or you'll have to negotiate
the seller to come down on their sales price, which can be difficult.
So make sure you're prepared and you understand how that's working.
Talk with a real estate agent about some plans that you have with that.
Also understand how your mortgage payment is going to change.
When you increase the purchase price, your monthly payment
is going to increase as well.
And not going to be huge because you're probably only overbidding
by maybe a few thousand dollars.
But if that spread is pretty large, your housing payment is
going to change a little bit.
And if you're really tight on what your numbers look like, that
might be really important for you.
So talk with your lender about some of those scenarios.
Hey, if we offered this much more, how much would that
change our monthly payment?
Okay.
So, before we get into kind of these three steps.
What I first want to talk about is a chart here.
And if you're listening on the podcast, I'm sorry, you can't see this.
But what this chart is kind of demonstrating how this would work
and what your break even period looks like if you're overbidding on a home.
So let's first look here at everything in the shaded purple.
This is the history of these prices.
So, we can see the last sale was in 2018 for about $200,000.
And then in 2019, we can see that value came up to about $220,000
and then we can see today.
So this dark shaded purple is our over payment.
Okay.
Above the bid.
So you can see that in 2021, we, we overpaid.
Compared to the value, the estimated value in 2021.
So if we sold the house in 2021, so we sold it in one
year, we would have lost money.
We would have bid too much money to be able to earn back that in appreciation.
But what you'll see is over a period of time, the home value
increases through appreciation.
And what you're trying to do is have your appreciation catch
up to how much you over bid.
All right.
So what you can do is you can go to zillow.com/home-values, and that's
going to help you look at the forecasted appreciation for the area that you're
in, but we can see here this dotted line is showing us that in 2022, we
actually are able to recoup that money.
So that's what you need to be careful for.
Not all of them are going to break even in one year, they might break even over
a period of three years or five years.
You just need to be very careful about making sure that the forecasted
appreciation is going to match how much you're overbidding so that you know
how long you can stay in the property before you're making that money back.
Alright.
So three quick steps here.
To kind of get an idea of how much you're willing to overpay and talk
through this with your realtor as well.
Okay.
And your lender, you don't have to do this alone, get their advice and opinions
on things as well, because they have a lot of history and experience with this.
So, number one, do you want to find out what the seller paid.
All right.
So if you go on something like Zillow, or you can even look on your auditor's
website, your county auditor's website, it's going to tell you.
How, when the home was sold last and how much it sold for.
So that's going to give you an idea of historical price and how the historical
price has trended over a period of time.
Has it seen huge increases, has it seen slow increases,
has been sold several time?
That's going to give you an idea of the sale price of the
property over the past few years.
Then get an idea of forecasted appreciation.
Again, you can go to zillow.com/home-values.
That's going to give you a good idea of appreciation moving forward
so you can see how quickly experts are estimating that the value would
increase over a period of time.
Again, is it kind of slow?
Is it pretty steep?
Is it a growing market?
That's going to help you figure out, Hey, maybe if this is a growing market
and we see forecasted appreciation pretty high, we might be a little bit
more comfortable overbidding for this home, But if things are kind of trailing
off a little bit or worse they're declining, then maybe I don't want to
overbid for this home because what the data is showing me is that the values
are declining or they're not increasing as fast as I'd like to regain the
money that I over spent for this home.
And then finally kind of get an estimate of how long you're
going to be in the property.
I know it can be really difficult to tell.
The average for most people is 10 years to be in a home, but your situation
might be different depending on your job and your family situation.
So try to get an estimate.
If you're going to be in the property for maybe three years,
maybe be more conservative on how much you're bidding for the home.
If you're going to be in the home for five years or greater, then maybe
you can start to be a little bit more aggressive with how much you're
overbidding for the house, because you have a longer period of time, a longer
time horizon to get that appreciation.
Okay.
So if you want to know how to write a good offer, this video over here is going
to help you understand how to do that.
Some of the ins and outs of what you need to do to get a
seller to accept your offer.