Today’s Homebuyer Psychology: Is Playing the ‘Offer Game’ Worth it?

With today’s high demand for homes, low housing supply, and low interest rates on mortgages, Benton Capital Mortgage Lending has noticed a frustrating trend among many buyers. It’s becoming more common to bid-up your offer and “win” the home you want — but sometimes very begrudgingly and with difficult emotions involved.

When is it worth outbidding another buyer on a home (aka “play the offer game”)? And by how much?

While only YOU can decide, it also depends on a variety of other factors:

• Do you absolutely need this home right now, or can you stand by until another opportunity comes up? Know in your heart of hearts whether you can wait or not. Will you look back in disappointment that you outbid (and possibly overpaid)? Or will you look back in disappointment that you didn’t outbid and win the home? Don’t get short-sighted and grumpy for the wrong reasons. If you offer much higher than you originally planned, make sure you feel good about it. You can always request certain buyer concessions from the seller that benefit you during escrow — and the seller just might agree to those.

• What’s the likelihood the home’s value will rise over the next 6 – 12 months? Sometimes a whole year later, buyers find that outbidding the competition was completely logical as the home’s value jumps even higher due to local supply and demand. And even so, many find they are still happy even if local home values stay flat or decline.

• Is your over-bidding just right or too high? Probably anything over 10 percent of the list price is too much, but this can vary. For example, 10 percent “over” on a $350,000 home is $385,000. Very few properties are worth 15 to 20 percent “over” their asking price. Again, it all comes down to clear thinking, reasoning, and what you really want.

• Will you have any repair or fix-it issues on the home during the next couple of years? This question is usually asked to justify a list-price offer, but it’s also a good one for outbidding the competition. If the home’s roof, heating, air-conditioning, plumbing, and several other utilities and essentials that have expensive one-time replacement/repair costs are new or nearly new, that helps a lot.

• Where is the home you want located, and how competitive is the area? Do the neighborhoods you’re browsing experience a good turnover in property sales, or is it difficult finding something? The answer lies in geographic desirability combined with home seller activity (or lack thereof). Use this as a guide.

• Do local “comps” justify your higher offer? Justifying a normal list-price offer (not an out-bid offer) based on recent local comparable-home transaction prices is a no-brainer. But when you’re trying to equally and objectively compare specific comps to the home you REALLY want (and it’s the same home others REALLY want), sometimes numbers and logic are pushed aside by competitive instinct. At the very least, you should rationalize a list-price offer in comparison to recent local sales before even considering offering more than the list price.

• What are the chances of another buyer offering a higher amount? While it really depends on the circumstances of the other buyer, historically low interest rates on mortgages have recently made it easier for the competition (or YOU) to make a super quick decision and justify outbidding the other party. This has made the competition even hotter at times.

• Remember: “overbidding” and “outbidding” are different. Overbidding is being one of the first interested parties to make an above-list-price offer on a home. But outbidding is competing against another buyer’s bid that comes in relatively around the same time yours did.

• 18 percent of U.S. homebuyers paid more than list price in 2020. Also, the share of homebuyers getting outbid nearly doubled over the last few months of 2020. Most sellers in these transactions garnered 1 to 10 percent higher than their list price, but in some cases it was even higher. Some buyers place built-in provisions within their offers that automatically over-bid any competing offers by a specified amount. Whether or not the property is really worth this above-and-beyond offer, oftentimes buyers win the home they want just by including this automatic bid-up.

Make the right “offer” on a home and arm yourself with the right facts! Benton Capital Mortgage Lending can assess your situation and get you on the road to a highly competitive, low-priced mortgage. Visit Benton Capital Mortgage Lending to start an application. Or if you’re interested in refinancing, text an image of your current monthly mortgage statement to 719-331-5443 and owner Mike Benton will tell you HOW MUCH money you could save each month.