Are home buyers foolish for “over-paying” for homes in this heated market?

We are in our 9th (yes, NINE) year of a Seller’s Market in Central Ohio. In some areas and price points there are over 20 buyers for every home on the market.  I have had as many as 41 offers on a single home.  I recently presented an offer on a home that the Realtor later told me had 56 offers.  The home with 56 offers went into contract at $40,000 over list price and the Buyer agreed to pay his offered price no matter what the home appraised for.


Is that buyer the “winner” or foolish?


We all know someone who has either made a bid far over list price to purchase a home in Central Ohio. Or you have heard that your neighbor’s homes have sold for well over list price. Even crazier — you have heard of Buyer’s paying over appraised value for a property with a willingness to bring additional money to the table if necessary.


Are these Buyers going to have a post-purchase hangover in 2022 when they wake up and regret having scrambled to beat 15 other potential buyers with an over-list price offer?  Do they regret having to cancel the trip to Disneyland because they needed the additional $10,000 to cover the “appraisal gap?”


First of all, let’s start with a disclaimer that the purchase of real estate in any market is speculative.  Very smart people didn’t foresee the housing crash of 2005-2012.  No one could have predicted that the soaring values we began to see in 2013 would continue to this day.   I sold houses to Buyers in 2013 when multiple offers were new and novel.  Those buyers are now selling again — having watch their home value skyrocket as much as 10% a year.  Those 2013 over-list-price bidders certainly don’t regret having stretched their budget and the credulity of others in 2013.


How much over “fair market value” is winning and how much is foolish? A good Buyer’s Agent can advise you, but generally I advise not to bid more than two years appreciation over what is likely to be appraised value.  There are times with when my clients are willing to stretch more, but there is a limit when more is too much.


Here is another consideration:  In 2010 a $200,000 home at 5% interest would have a mortgage payment of approximately $1400 a month.  In 2021 a $280,000 home at 2.78% interest has the same mortgage payment.   So, the buying power of the lower interest rate often outweighs the $10,000 or so over list price you paid for the home.  You could wait 2-3 years when the market slows, but if interest rates rise your buying power is equally reduced.


Another way to look at the purchase is that buying a home is far more than a financial transaction.  Yes, we hope it’s an investment that pays off in years to come.  But it is also a roof over your head, a place to put the Christmas tree, and walls you can paint purple if you want to.  You’re going to pay to live somewhere, so a good portion of your mortgage would be going to rent.  (In fact, in 2020, with 2.5% interest rates it is often less expensive to buy than to rent, at least at it pertains to the monthly payment.) Even if the value stagnates or goes down — it doesn’t affect you unless you need to sell in a “down” period.  The market is cyclical — stay and the value is likely to come back. As long as the home is maintained it is always worth something.  When the mortgage is paid off, you have a roof over your head and the equity in the home.


The bottom line?  If you are not comfortable with offering over list price for a home or bringing money to the table to offer more than appraised value — this market is not for you.  Unfortunately, until the steam is out of this overheated housing environment there will be a long line of buyers willing to do so to become homeowners.


This Blog is written by Kathy Chiero, Lead Agent for The Kathy Chiero Group.  Thinking of Buying?  Get a copy of my free book “Ten Ways to Win in a Challenging Market” Visit us a

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