How HIGH do I go?

September 6, 2009 · Shokoofeh Nowbakht

how high I was talking to a colleague today. She said she had a disappointing day yesterday. I asked her what had happened. She explained that her client made an offer on a property. Of course there were multiple offers and their offer was already, what my friend believes, over the market value. The seller which is a bank, or perhaps the listing agent counters the top 2 offers for their highest and best offer. My friend doesn’t want her client to buy this property for more than what it’s worth. But, on the other hand she doesn’t want her client to loose another house to multiple offers, either. She said that she would feel guilty no matter what the outcome. “I know the house will not appraise,” she said. My advice was that she explains everything to her clients and let them make a decision.

It seems like the inventory is low and some listing agents take advantage of the situation and list the properties below market value. This becomes very difficult for the buyers. How high should they offer? How can a regular buyer who is using a conventional loan compete with an investor who is buying properties all cash and waiving all inspections and financing contingencies?

After having said all that, my advice to buyers is to have patience and keep making offers on properties of your choice. And, you go as high as you believe the property is worth to you. Keep in the mind the absolute value at which you won’t feel bad if you didn’t get the house.

Now, Let’s go out there and write your BEST and HIGHEST offers! Good Luck to all.

Shokoofeh Nowbakht

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6 Responses to “How HIGH do I go?”

Brian Boisson on September 8th, 2009 8:49 am

Shokoofeh,

Thanks for a great posting!

When the question is asked for our opinion, we need to present the facts to our client, and help guide them into making a decision- just like you outlined!

Thanks again,

Brian
Claudia Tringale on September 8th, 2009 12:01 pm

This exact same scenario is currently occurring with me and my Buyers that are actively seeking a 4 BR move-up home. We have been out-bided twice now. I finally had the Buyers pre-approved (for the 2nd time) to their highest buying potential so that we know for certain what they can truly afford (vs. not how much they are willing to spend). Even though they were qualified much higher (high 8s and not low 7s), they are practicing sound frugality and don’t want to spend their entire savings (always smart to keep a healthy reserve). I told them finally, the best strategy is once you know you found that perfect home and can truly visualize yourself living in that house, then make your best possible offer in your capacity, so that you don’t have any regrets. Even if your offer is higher than fair market value, the appraisal contingency is in place to protect you. Appraisals are very stringent these days, and you just simply can not sell a house for more than the market can bear. Therefore, I agree with Shokoofeh’s advice, don’t hold back and get discouraged on making offers for even in a multiple offer situation you never know how things will transpire at the end. The highest offer does not always win the deal – you have to be able to perform.
Larry Franzella on September 9th, 2009 3:13 pm

Great advise! A client with information will make good decisions.
Lee Ginsburg on September 13th, 2009 10:50 pm

There is thought out there to overbid even if you know it does not appraise. Your offer gets accepted, the other buyers are out of site and you re-negotiate when and if it does not appraise. I understand banks are willing to do that. It is a doggy dog world out there. If it does appraise they got their dream.
Adam Chinn on September 15th, 2009 7:36 pm

Great Post Shookoofeh,
I have been working with a few of my clients for a while and we are experiencing similar things. All of the homes they have put offers on have had multiple offers, most of the time a few cash offers. I have explained to my clients the pros and cons of offering over the comparable sales in the area. It is possible that the seller would take the highest offer and if it doesn’t appraise and then renegotiate, great they get the property, hopefully for market value. But if it doesn’t, they are then in the situation where they could pay more for the property then what they think it is worth.

I always do my best to show my clients the facts and have them make the decision that they are most comfortable with. The market has definitly changed and will continue to do so. Thanks again for the great blog.

Adam
Jean Joh on October 14th, 2009 11:25 am

Hi Shokoofeh,
I’ve been going through the same thing with several of my clients, especially in the “hotter” areas like San Francisco and some parts of Hayward. I try my best to provide all the information I can and then encourage my clients to put in the best that they feel comfortable with.

There’s also the assurance that: 1) there is still an appraisal process to help protect against over-paying and 2) prices have come down in many places, such that even if you are “overpaying” right now, you’re not really overpaying in the long-term view of things. Thanks for your blog on an all-too-relevant issue nowadays.

Jean