Should I Offer More Than the List Price on a Home?

Should I Offer More Than the List Price on a Home?

QUESTION: My agent is suggesting that I make an offer on a home that is more than the asking price. I am being told that there are other interested buyers. Right now I am not entirely comfortable with this situation. I don’t know if I am being told this because it is true, or is it [for the real estate agent] to have a higher commission?

ANSWER: Before we discuss the pros and cons of making an offer above the list price, I want to talk about your relationship with your REALTOR®. Your buyer’s agent should be someone you trust completely to represent your interests — not your agent’s. Before you go any deeper into the process of buying a home, you need to feel confident that you have a reliable, professional REALTOR® working for you. You should talk this through with your REALTOR® and explain your discomfort. If you’re not satisfied with the explanation about whether you’re in a multiple offer situation, you have a couple of options:

• Read your buyer-agent agreement to see how you can end the contract and find another agent.
• Discuss this issue with the agent’s broker. The broker should be able to help you and your agent communicate better or, alternatively, find another agent who will be a better representative for your interests.

Most REALTORS® will never push a client to make a higher offer for a home unless they’re sure the buyers can afford to pay more and that the home is worthy of multiple offers. REALTORS® who don’t serve their clients well rarely last long in the business because real estate depends on the reputation of the agent. REALTORS® build their business on the basis of referrals, so one unhappy client can hurt their ability to work with other clients in the future.

A second reason that a REALTOR® is unlikely to lie about multiple potential buyers and push you into making an offer above the list price is that the home may not appraise for the sales price. At that point, if the deal falls through, the REALTOR® will have wasted a lot of time.

It’s possible from your question that you believe that the listing agent, not your agent, is the one who’s going after a bigger commission by pretending that there are competing offers. If this is the case, your REALTOR® needs to find out the truth from that agent or the agent’s broker. Most REALTORS® do their best to establish good relations with other agents since their paths are likely to cross again.

As far as your personal decision about whether to make an offer above list price, there are three important considerations:

• First, you must be completely comfortable with the monthly mortgage payments at a particular price point. Before you make a higher offer you need to find out what the impact would be on your monthly payments and whether that would still be an affordable payment.
• Second, you need to decide how much you want that particular house. Sometimes buyers get caught up in the competition and don’t realize that they’re spending more than they want for a house.
• Third, if you do decide to make an above-asking-price offer, consult with your REALTOR® about how to handle the appraisal contingency. Should the home appraise for less than the sales price, you might have to come up with extra cash or lose the property depending on how your contract is written.

Clearly, you need to establish a relationship of mutual trust with your REALTOR® before you make any significant decisions.