Paying A Premium
It’s natural for home buyers to be leery about paying too much. Since the beginning of time, sellers have always pushed for a higher price, and buyers want to pay less. It’s the primary reason why agents have a job.
But the market’s recent resurgence has seen many buyers gladly pay full price – and higher. The more-conservative buyers are reluctant to participate in such folly, yet the folks who got in to their house 12-18 months ago are thanking their lucky stars. They probably paid what seemed to be a premium then – but now their house is worth more.
I’m going to do my best to get you a great price. But if you are in for the long haul, don’t let a couple of percentage points stop you. Add a little mustard to your offer price, and get it done!
How to Justify Paying a Premium Price
Only pay a premium price for a premium product. If the home has obvious defects in condition, location, or suitability, then reject, rather than paying retail, or retail-plus.
Timing is everything. With low inventory, you may not get another chance for weeks or months. If you don’t have flexibility in your schedule, then make sure you get the next premium house that hits the market.
Know the value of upgrades. Have a keen sense about the cost of upgrades, so you can pay the right price for an premium product – or know how much it will cost to upgrade a plain-jane.
Sniff Test/Days on Market. After a few weeks on the market, the only way a seller can justify his high list price is that the market is catching up with him, which is verifiable. Otherwise, just say no – at least for now.
Just cap it to 5% or less. If you have to pay more than you think it is worth, try to keep the price paid to under 105% of its actual value. The appraisers will live with that, and so will the bank’s underwriter – there is wiggle room.
Wait for market downturn. No problem, it could happen. But sellers won’t be convinced until 1-2 years into a decline or flattening, and the premium homes will be the last to feel it. Get your easy chair and popcorn.
People have more horsepower than you. People with more money are throwing it around, and the competition has been fierce. Your best hope is to out-smart them, so be crafty.
Money isn’t everything. Based on how fast prices have gone up, it appears that buyers think there are more important things than their money. Real estate is becoming a highly-valued asset due to the intrinsic value – shelter in which to raise a family.
Never pay more than you are comfortable paying. But with tight inventory and low rates, know that sellers are going to keep pushing higher, and many less sophisticated buyers and agents are going to jump – especially at the good ones.
Get good help!