Should We Offer Over List Price—and by How Much?

By Richard Montgomery
Richard Montgomery
Richard Montgomery
Richard Montgomery is the author of “House Money: An Insider’s Secrets to Saving Thousands When You Buy or Sell a Home.” He advocates industry reform and offers readers unbiased real estate advice. Follow him on Twitter at @dearmonty or at DearMonty.com. Email him at monty@dearmonty.com.
January 14, 2022 Updated: January 14, 2022

Dear Monty: We live in an area where it has become common to hear of bidding wars. We are ready to start looking to buy in the next couple of months. The very idea of paying more than the seller is asking grates my intuition. But we also want to buy. Is it a good idea to pay more than the list price? And if we do, how much over the list price should we pay?

Monty’s Answer: You are not alone in resisting the bidding wars. While no one can predict the future, the market will be changing. The Federal Reserve controls the interest rates that mortgage lenders charge on mortgage loans. It recently signaled that it would soon begin modifying its rules to allow interest rates to rise. Some country areas are reporting that the bidding wars have faded considerably. And finally, as COVID-19 fears disappear, more listing inventory will be coming on the market. The question in the unstable markets is when.

Keep a Constant Eye on Your Neighborhoods

Watch the market by digging into the data. You will need a real estate agent with your best interest at heart. They must furnish you with specific, up-to-date data that indicates how the hyperlocal market is performing. The hyperlocal market is the neighborhood or neighborhoods where you want to live.

Most statistics in the media and the multiple listing service are very general. While comparable sales are essential, the data you need to monitor changes by neighborhood and price range almost daily. How many new properties are coming up for sale? How many are selling? How long are they on the market? Is the inventory trending higher? If your agent provides this unfiltered data for four weeks in a row, you will see for yourself what is happening. Unfiltered data means the agent has not excluded data that skews the results. While most real estate agents are honest, unfortunately, some agents will skew data.

If You Cannot Wait

There is no set formula to guide you on how much over the list price you should pay. There are many intangibles that only you can evaluate for your circumstances. What can you afford? How close does the home come to meeting all of your requirements? Will you have to make costly improvements, or is it in move-in condition? How does it compare to other homes you have seen?

You also have to be prepared, as these circumstances will be presented with speedy deadlines. A seller may give you until noon tomorrow to submit. You need to have a written pre-approved mortgage of a certain amount. Make your lender a part of the plan. A prequalification letter will not do. Suppose your offer is accepted, and you need a loan. In that case, the seller will likely condition an acceptance on your agreement to pay the difference between the sale price and the appraisal in cash, should the appraisal be lower.

You want the offer to be as clean as possible, but not so clean that you waive the home inspection. While some agents will recommend waiving the inspection, do not succumb to that suggestion. Here is a link to a recent Dear Monty article from a homebuyer that waived the home inspection: DearMonty.com/is-it-wise-to-waive-a-home-inspection

Richard Montgomery is the author of “House Money: An Insider’s Secrets to Saving Thousands When You Buy or Sell a Home.” He advocates industry reform and offers readers unbiased real estate advice. Follow him on Twitter at @dearmonty or at DearMonty.com. Email him at monty@dearmonty.com.