Should You As Buyers Increase Your Offer?

Today's post is referring to whether a buyer should increase their offer on a house in the case of multiple offers.  That is always a difficult position to be in. I usually suggest that the buyer needs to consider two different scenarios. First, if they lose the house and they will always be upset the they did not increase their offer, then they should bid higher.  On the other side, if they bid higher and are going to be thinking they paid too much, then by all means do not do it. This situation is the worst when it is a multiple bid situation and you are called on to present your highest and best, so you do not know what amount you will have to bid, and you could be bidding higher than you need to. With our low inventory levels these situations have become rather common.

Below is KCM Blog's take on the situation.

Limited inventory and a very strong demand for housing has created an environment where bidding wars are commonplace in today’s real estate market. Homes priced properly are getting multiple offers within a short time of coming to market. This brings about a dilemma for the agent: How should they advise their client who is about to make an offer when other offers will also be presented?

Over the last several years, there wasn’t any pressure on the buyer to adjust their offer for three reasons:

1. There were plenty of homes for sale


2. Prices were falling


3. Mortgage interest rates were falling

They buyer could find another home easily for probably less money and a lower mortgage rate. There was no downside to not ‘upping the ante’. However, in today’s market, things have dramatically changed.

HOUSING INVENTORY

A normal real estate market has between 5-6 months worth of inventory. Over the last several years, the inventory of homes for sale had skyrocketed to 10 months. Most buyers in almost any price range had a multitude of houses to choose from. Today, the national month’s supply of inventory has fallen below five months. In many markets, there is not enough housing inventory to satisfy the current demand.

Conclusion: If the buyer loses the house they are bidding on, there is no guarantee they will find a similar home anytime soon.

HOME PRICES

Becausemof the limited inventory, home prices are again appreciating. The Case Shiller Pricing Index revealed that house prices rose by 6.8% in 2012. Experts are projecting home prices to increase by 5% to 8% in 2013.

Conclusion: If the buyer doesn’t get this house, there is a good likelihood that a similar home will cost more in the future.

MORTGAGE RATES

The ‘cost’ of a home to a buyer is determined by the price of the house and the expense associated with the financing. Mortgage rates are projected to inch up in 2013. In a recent forecast, the Mortgage Bankers Association predicted that rates could climb as high as 4.3% by the end of the year.

Conclusion: If interest rates do inch up, the ‘cost’ of the next home could be impacted significantly.

Bottom Line

If a buyer truly loves the house they are bidding on, it probably makes sense to raise their bid now instead of waiting for another dream house to appear.