Buyer Considerations – Should a Buyer Pay More than a Home is Worth to Realize Their Dream?
With double-digit appreciation and a drastic drop in the supply of homes for sale, we have officially moved from a buyer’s market to a seller’s market in many areas. This paradigm shift requires home buyers to modify their strategy for purchasing a home. In the new real estate market, multiple offers and stubborn sellers are commonplace. If you think it’s bad now, just wait until inventory levels are depleted even further.
What’s a buyer’s primary goal?
- To get the best price possible
- For the home that best suits them.
A buyer’s new strategy should reflect changing market conditions. Home buyers now have the opportunity to focus on the emotional benefits associated with purchasing a home. Price should not be the most important consideration.
Consider the following example:
A home buyer finds a house they like and offers fair market value of $400,000. This is a reasonable offer based on the fact that the home would appraise for this amount, but the seller is demanding $420,000. Should the buyer pay this amount? If this is the right house for the buyer, absolutely! Based on the current seller’s market and double-digit appreciation this past year, it’s likely that appreciation in the coming year will be the same or more. At an appraised value of $400,000, it’s likely the property will be worth $440,000 in a year. In other words, the home will be worth $20,000 more next year, than what the buyer paid for it this year. The expected appreciation has minimized the risk associated with overpaying. Besides, the buyer now has an additional 12 months of use and enjoyment of the property at no additionalcost.
The strategy of subordinating price considerations to the emotional benefits of purchasing a home should be extremely sound in the current appreciating seller’s market.