Should I be offering over asking price?

Question

Aloha everybody! I'm a first time homebuyer trying to get a SFH or any home honestly for my family to owner occupy. The issue is that every time we put an offer on a house, it goes for 40k+ over asking price! All the houses we put in offers for need around 10-15k in rehab that are mostly cosmetic. Anything more than 10k in asking though ruins the whole deal. The goal would be a live-in flip, but instead of selling we'd rent and do a cash out refinance or HELOC to purchase another place. Is anyone else running into the issue of people asking 20% or more over asking price??? I've tried pitching seller financing, but competing with the highest offer, unlikely the sellers would take it. I'm located in Oregon, specifically in Yamhill county but from what I hear, lots of people around the country are running into this. If so, any ideas for getting around this or should we wait? (Don't want to wait though)

Michael Dumler · Answer

@Michael Morikawa this is basic economics of supply and demand. With limited inventory, you're not the only buyer running into this problem. Given the high demand virtually across multiple markets, when it comes to purchasing real estate, you need to understand the tradeoffs. Since you are routinely being outbid, I recommend you broaden your search location to submarkets outside of your desired area where competition may be lessened. Moreover, if relocating your search is not up for discussion, then you're going to have to be more aggressive with your offers. Seller financing with current market conditions is highly unlikely. Furthermore, waiting longer is not an ideal solution. No one, and I mean no one, can predict future housing prices. With all this said, you can also try to be more proactive and purchase a property off-market. This will require work on your end to build rapport with a potential seller. Hope this makes sense and helps!

Account Closed · Answer

@Michael Morikawa  You (generally) either pay over asking in this market or put in the work to get an off-market deal.  Someone with an over ask price cash offer is gonna typically get the house.  But, if you’re willing to put in the work you can get an off-market deal. You just have to put yourself out there.

Joshua Noth · Answer

@Michael Morikawa You are correct, lots of places are facing this obstacle: supply is low, demand is high, and this is one of the many results of that.  As others have mentioned, offering over asking on a property doesn't inherently make it a "bad deal". As you said, you have your numbers, so as long as those pencil out on an offer (even potentially over asking), you can offer with what you are comfortable.

There are other things you can do besides just "more money" on the table to help secure a deal.  As @Michael Dumler mentioned, off-market deals will significantly reduce your competition, and in turn your need for over bidding.  Expanding your search further away from the hotspots of a market can also help. Additionally, there are pieces within your offer that you can add/take out for extra help too.  I don't know the ins and outs of the Oregon contract, but using Texas as an example... waive appraisal contingencies, waive financing contingencies, offer temporary seller's leasebacks, QUICK CLOSING, don't ask for repairs, offer to pay for title/survey, etc.

Even though they are potential added expenses on your end, sometimes sellers just want a convenient closing, and maybe taking some closing costs of their plate will make that more appealing to them. Hope this helps!

Dave Skow · Answer

Depending on the  property - you  will likely going to need to  up your offer price  and  loan amount to  correspond to the higher  price ...a  40K increase in price wont  make a  huge  difference on the new loan amt ...if this   ruins the   #s  on the  deal - wait for  another property where it makes sense

Theresa Harris · Answer

Look at houses that are at a lower price point.  You can also add an escalation clause where your price goes up by $1000 at a time to a max of $X to beat out other bidders and limit how much you pay.  So if you offered $400K with a max of $430K and the highest other offer was $425K, your final offer would be $426K.

If the renos that need to be done are cosmetic, leave them until you've lived there for a while.  Guessing some things are paint which can wait and you can do it yourself.

Joshua Janus · Answer

This can also happen when an area has numerous factors pointing towards a relatively high appreciation rate. In my market, it seems people are paying prices for properties on the market banking on the fact that it will appreciate well in the next few years. When large swaths of buyers are doing that in a market, it is usually right but unfortunately it makes it really difficult to purchase a fix and flip or rental with enough margin.

William Sing · Answer

That has definitely been the case. Anything on market, especially given how low the supply is has been going way over asking. A lot of agents I know have been trying to list so it doesn't become a bidding war but they still turn out to be that way.

Guy Gimenez · Answer

Sounds like you're fishing in the wrong pond. Are these properties listed with brokers? If you want investment grade deals, you have to fish in the investment grade pond, which means off market properties only.

Michael Morikawa · Answer

@Theresa Harris There's a couple homes that we looked at that that were under market value and had a ton of value add opportunity, but the rehabs were going to be around 75-100k, something my wife didn't want to get into. Another one the layout was not good for our family as our daughter (who's 9 months old) would be on a separate floor as us, something we could not compromise on for health and safety reasons. We're not giving up, but it is much more difficult with a child as there are other considerations we have to take into account. We can do cosmetic stuff, but finding a place that's affordable for us is the hard part.

Michael Morikawa · Answer

@George Azita Actually I ALWAYS crunch the numbers. I enjoy doing the numbers actually, but the amount of money I can invest is not a lot. I know this will answer my own question for this post, but the short answer is no if I put money 20% or more over the asking it will not cash flow. Not even close. The cost of living on the west coast is too high and the price of rent isn't enough to offset the balance. I keep my emotions out of it as much as possible, but I have a family so the decision is not only mine to make.

It's true that I don't have a business model as I don't even have one home yet to base anything off of yet. I'm just getting started. Doubling your investment every 1-2 years is awesome and I do hope to get there some day! Even if I find a home under market value or a home that I can do some kind of value add, it is unaffordable for my family currently so I'm searching out other ways that I can break into this world. Thanks for you input!

Should I be offering over asking price?

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