I understand the concern many buyers have when it comes to overpaying for real estate. It’s a big investment, and nobody wants to feel like they didn’t get a fair deal. However, it’s important to consider the current market conditions before making any judgments. In San Jose and Silicon Valley, it’s a sellers market, meaning there are more buyers than sellers. This leads to higher prices for properties, regardless of their original listing price.
Let me give you an example to illustrate this point. Let’s say you’re looking at a home listed for $1,000,000, and you plan to make a 20% down payment. You expect to pay a bit more than the asking price, so you arrange to borrow $830,000 from your lender. Your goal is to offer the seller $1,030,000, which is only 3% over the asking price.
However, your real estate agent informs you that similar properties in the neighborhood are actually selling for around 10% above asking, which would be $1,100,000 in this case. Now you’re faced with a decision. Do you follow your agent’s advice and offer $1.1 million, or do you stick to your original goal of $1.03 million because you don’t want to overpay?
There are a several factors to consider here.
First, will your original offer actually win you the deal? Is it even good enough to get a counter if you are competing against other offers? If it is too far from the highest offer, the seller will probably not respond to your offer.
Second, how much more will it cost you if prices increase before you’re able to get into contract on the next home you want?
Third, if you keep renting, how much will you be contributing to your landlord’s wealth instead of your own? The money you pay in rent will provide you shelter, but it won’t build equity for you. For instance, let’s say your rent amounts to $4000 a month, and it takes you 6 more months to buy a home. That’s $24,000 of your hard-earned money that went into enhancing someone else’s financial portfolio. This not only benefits your landlord directly but also prevents you from gaining value. However, if you invest that money into your own property now and the market increases by just 1% over the next year, you would have $34,000 in equity.
When you choose to rent, you have no control or stability over your housing beyond a 1-year lease. Your landlord can give you a notice to vacate at any time, leaving you at the mercy of market rent fluctuations. Additionally, you’ll have to bear the costs of moving again and won’t have the ability to make decisions about improving your home for your comfort.
Keeping these considerations in mind, it’s crucial to weigh the potential risks and benefits when deciding whether to offer above the asking price.