It's irresponsible to bid 20% over what the house is worth (which has nothing to do with asking price), just because you got emotionally attached to the house, and started a bidding war with another person emotionally attached to the house.
No, but there is a 'what was selling price for similar homes in this area' price in nearly every specific.
Listing prices are intentially set to be much lower than selling prices. Selling prices are the real prices, listing prices are fiction.
People paying 20% over listing usually means that listing was 20% under selling. Boring! And not financially imprudent!
People paying 20% over average selling in the area, for an equivalent home is what raises my eyebrows as financially imprudent.
I feel like this is only true in irrational housing markets, or at least those that have a chronic undersupply of housing .
In my local non-insane market I went through two different purchases where I successfully bid less than asking.
That's gone since the pandemic though since everyone tried to move out of cities and work remote in my town.
During a buyers market, prices usually approach the list or go under.
This reflects the fact there is how much the house is worth to the seller, and how much it is worth to the buyer, and neither of these are the sale price.
This has been true even in many cities that aren't trendy, and have been building housing like crazy for a decade.
My unremarkable suburban house in a boring city that's been building housing constantly and extensively for the last 10 years, is up like 25% in value over the last 2 years. We thought, based on extensive experience in this market, that we were already paying a bubble-induced premium of 15-20% when we bought it (possibly no longer true—thanks inflation). WTF.
If inflation is 8.5% and a mortgage is 3%, the bank is paying me to buy a more expensive house.
At the same time, If I hold and wait to buy, my savings are evaporating while the price goes higher.
Let the cash buyers suffer the losses. You'll thank yourself later.
In my market nearly all winning offers have waived the appraisal contingency
But since you mention it, in the slower market being discussed here, I would definitely not waive an appraisal contingency.
If the buyer chooses to proceed, this can be a financial disadvantage reducing access to a highly leveraged loan.
The point is, in a lot of markets, if you bailed on offers over this in the last couple years, you wouldn't be winning any bids in the first place, and wouldn't have been able to buy a house at all. The winning bids include guarantees that the buyer will cover the difference. If you won't do that, you'll lose to an all-cash offer from someone who will. If you're lucky, you won't be competing against superior offers that also waive all contingencies.
I have no idea where all these people are coming from with hundreds of thousands in cash and the ability to cover several thousand more on top of the appraisal value, but they seem to be involved in damn near every sale the last 2ish years. Given how many are OK waiving inspections and such, I have to assume they're institutional buyers who can spread that risk around, not individuals who could be ruined by that kind of thing.
The "solution" to this, in the run up to the '08 crisis, was for appraisers to "help out" by fudging their figure to make it match the sale price. I know this because a real estate agent whose husband was a loan officer, told me so. "I know they were just trying to help out with these new regulations, but it's had the unintended consequence that appraisers can't fudge their numbers slightly higher to match an offer that's only a couple percent above the natural appraisal, like they used to". LOL, yeah, the exact thing they were trying to accomplish was an "unintended consequence". Talk about not being able to understand something because your paycheck depends on it.
Possibly some appraisers in at least some markets have figured out ways around this, and are back to fudging numbers. I dunno.
My appraiser (on a refi) was walking around the house with me and basically asked what I thought the place was worth. That was what it appraised for. (The contract price on an original sale has the same property: what the buyer thought it was worth.)
Ideally those are tethered, but the appraisals didn’t give me a great sense of independence.
There's also sunk cost in the effort of finding a house you want and reluctance to keep looking.
If you are young it can be perfectly sensible to bid far more for a home you love. An “overpayment” is paid over many years of happy living, which can be a worthwhile trade.
Living in a cheap economically sensible shithole for too many years is a bad idea, unless you have no other choice financially. The problem is making sure you buy a home that makes you happy. Overcapitalisation is sensible if you can afford it, and if you truely do get valuable pleasure from living in your home.
Yes, do take care to avoid the mistake of buying a home and getting chained into a situation you end up hating.
I think most people are better off just renting until this madness blows over. God knows I am much better off for having rented and plowing my money into investments for about a decade before I bought my place.
Houses keep up with inflation over the long run, while stocks have returned ~ 7% after inflation. If housing is an investment, it's a poor one, and you should invest only what is absolutely required to have what you need not want.
I think you are committing the error I am trying to point out: don’t treat your living requirements 100% as an investment.
That said, your living choice always has an investment decision component, because most of us need one roof over our head. If renting, you are shorting the home ownership market (a renter owns zero bedrooms but needs one bedroom). Making the decision to rent is either (a) betting against the real estate market (shorting), or (b) betting that one can make better returns through other investments.
The deeper point is that we should try to optimise for our internal joy, and nobody should measure their success only in metric dollars.
When we sold our house the broker put it at a fair price. Then along came a couple that’s been outbid a number of times and offered 30% over within 24 hours of listing.
Was the home underpriced? Maybe, but the housing market is such that it doesn’t have to appeal to hundreds of people. Just one.
Looking at the people going through the home most of them were using flyhomes.com (they operate as sort of a “we will pay cash for the house and then you pay us back”) and probably had no intention of living there.
There is what the house is worth to the seller, and what it is worth to the buyer, and the sale price is always somewhere in between.
It is just taking advantage of an information asymmetry to get the sale price closer to what it is worth to the buyer.