Gut Check: Making an Offer in a Rising Housing Market

A few weekends ago I received word that an offer I had submitted on behalf of clients would be competing with other offers already in hand and that we needed to come back with our “highest and best” offer. Thus, I found myself yet again trying to give guidance to clients on the offer they had made, and just how high I thought they would have to increase their offer to have a shot at being the winning bid.

The challenge, however, is that we are in a rising market. Not only that, it is a cash rich market where appraisers have less power over the tide because they are A: not even involved many transactions at all because there is no loan being applied for, or B: home buyers are able to bridge the appraisal gap with cash out of their own pocket. So what does this mean for those trying to come up with a winning offer? It can often mean you are throwing the sales data out the door and making a decision strictly based upon your gut and the tenuous answers to a slew of speculative questions.

What do WE think it’s worth? How high will the other offers go? Is the market going to stay strong enough to justify going that high? etc…

The only question that matters in the end is this: how high are we willing to go and be okay if we don’t get it? In other words, at what point are we happy to let someone else get the keys, and actually be glad we didn’t stretch that far?

The disarming part of this for me, as an agent, is that I can’t answer this question for anyone. I can give my opinion about what offer range might be successful, and I can suggest a value that I think to be irrational and should be avoided. However, I can’t force anyone to make the offer I think is best, and I can’t force someone not to push the envelope too far. I also can’t guarantee my advice will put anyone’s offer on top, nor can I guarantee an offer won’t be $10,000 higher than anyone else’s, thus exceeding what was necessary.

So, it goes back that question: how high are we willing to go? Oh, and there is added pressure because if you don’t win out on this particular home, you will possibly have to bid even more on the next one like it because the market continues to rise. If you were not the only one to lose out, you are also going to have other, also increasingly motivated, competition as well.

Guiding clients in this environment is a challenge. I have lost sleep after advising folks to bid what I thought may be too high only to find out they were still out bid, and conversely I have lost sleep over bids I thought were too low and then come out on top. In the end home buyers in the DC Area today must not be afraid to push the market, but that does not mean they can’t do so on their terms.

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