Should You Increase Your Offer on a Home? Should You Bid Over the Asking Price of the Home? Highest & Best - Multiple Offers - Oh My!

Housing inventory is at an all time low in the Metro Atlanta area. Six months of inventory or less is a "healthy market." In Metro Atlanta, most counties are running somewhere between a 2-3 months inventory. That says it all!

It's tough to advise clients in this market. We don't want them to feel as though we're being pushy when we tell them to make a strong offer, to increase their offer, or to even overbid the asking price. Rarely has our market seen overbidding, but now it's common. With the lack of inventory and the higher demand of buyers you can bet that if you are interested in a home at least a few other buyers are as well.

There was an article published recently by the KCM Group that we follow. They are trusted real estate advisors and they talk about the issue of low inventory and making offers exactly the way we are experiencing the Atlanta market. Read their article below:

Should Your Buyers Increase Their Offer? Posted: 28 Mar 2013 04:00 AM PDT

Limited inventory and a very strong demand for housing has created an environment where bidding wars are commonplace in today’s real estate market. Homes priced properly are getting multiple offers within a short time of coming to market. This brings about a dilemma for the agent: How should they advise their client who is about to make an offer when other offers will also be presented?

Over the last several years, there wasn’t any pressure on the buyer to adjust their offer for three reasons:

1. There were plenty of homes for sale
2. Prices were falling
3. Mortgage interest rates were falling

The buyer could find another home easily for probably less money and a lower mortgage rate. There was no downside to not ‘upping the ante’. However, in today’s market, things have dramatically changed.

HOUSING INVENTORY

A normal real estate market has between 5-6 months worth of inventory. Over the last several years, the inventory of homes for sale had skyrocketed to 10 months. Most buyers in almost any price range had a multitude of houses to choose from. Today, the national month’s supply of inventory has fallen below five months. In many markets, there is not enough housing inventory to satisfy the current demand.

Conclusion: If the buyer loses the house they are bidding on, there is no guarantee they will find a similar home anytime soon.

HOME PRICES

Because of the limited inventory, home prices are again appreciating. The Case Shiller Pricing Index revealed that house prices rose by 6.8% in 2012. Experts are projecting home prices to increase by 5% to 8% in 2013.

Conclusion: If the buyer doesn’t get this house, there is a good likelihood that a similar home will cost more in the future.

MORTGAGE RATES

The ‘cost’ of a home to a buyer is determined by the price of the house and the expense associated with the financing. Mortgage rates are projected to inch up in 2013. In a recent forecast, the Mortgage Bankers Association predicted that rates could climb as high as 4.3% by the end of the year.

Conclusion: If interest rates do inch up, the ‘cost’ of the next home could be impacted significantly.

Bottom Line

If a buyer truly loves the house they are bidding on, it probably makes sense to raise their bid now instead of waiting for another dream house to appear.