Apr 05 2022

Should You Ever Pay Over the Listing Price for a New Home?

Homebuyers have been, and will continue to, pay over list prices. But should you? Let’s delve into the details.

It’s a simple fact: home prices are rising. Considerably. The combustible combo of low interest rates and low housing inventory has lit a fire under the housing market and brought it to a boil that won’t simmer anytime soon. Homebuyers have been, and will continue to, pay over list prices. But should you? Let’s delve into the details. 

Why would one pay over the listing price? 

It may seem like a real risk. If you pay more for a home than its listing price, and that price is fair for the area you are taking on negative equity. Therefore, building equity in your home will take longer, affecting a range of things: how long you may have to pay for private mortgage insurance, when you can refinance your mortgage loan; and when you’ll be able to get a home equity loan. Plus, if you decide to sell the home anytime soon, there is a chance you’ll take a loss. While all these things are true, it still makes sense for lots of homebuyers to pay above the appraised value of a home. 

Rising home prices is one reason. While we may not get the record level of increases in home prices we’ve witnessed in the recent past, no experts expect we’ll see significant price drops. Rather, it’s more likely that moderate price rises are on the horizon, and that your home will one day be worth significantly more than when you bought it. Here are some things to consider when faced with the prospect of paying over the list price: 

  • Affordability. If your mortgage loan doesn’t cover the cost of the home, the shortfall is coming out of your pocket. This is in addition to the required down payment. If you can handle that cash outlay without depleting your savings, you might wish to pay. 
  • Longevity. Beyond the home’s price tag, you’ll have to consider closing costs, moving costs, and the possibility of home upgrades and repairs. If you plan to stay in a home for under five years, the investment may not pay off no matter where home prices are when you decide to sell. If you’re in it for the long haul, it may be the best investment you ever make. 

How does paying over the appraised value affect my mortgage? 

Lenders generally don’t finance mortgages for more than the appraised value of the home. Which makes knowing how much you can afford to spend with a pre-approved mortgage even more important. And as you’ve got about a 50/50 chance that the house you want to buy will sell above its listed price, you might want to shop just below your loan limit. That way, when you find the right house, you’ll know there’s a cushion and that the mortgage can come close to covering the selling price. 

How much are home prices rising? 

According to the National Association of Realtors, the median home price across all different types of housing was $350,300 in January 2022. That’s a rise of over 15% from January 2021. The jump wasn’t an atypical spike, a continuation of a long-running trend, marking the 119th consecutive month we’ve seen of increases, the longest-ever such trend in recorded history. And going forward? Based on analysis by the American Enterprise Institute’s Housing Center, the forecast for 2022 looks to be an overall rise in home prices of 12%. 

Are things the same all over the country? 

No. California is seeing some of the nation’s widest discrepancies between home list prices and selling prices, with Oakland, San Jose, and San Francisco reporting some of the nation’s highest divides. In San Francisco, a staggering 70.8% of houses sold for more than the asking price. Nationally, that number is lower, with about 50% of homes selling over their list prices in 2021, according to Redfin. Which was 23% higher than the previous year’s numbers for houses that sold over list prices. 

How do I know if a list price is competitive? 

You may go into the house-hunting process understanding that list prices are high these days, and you may very well pay more than the listed price. But how can you tell if the list price is competitive in the first place? Your real estate agent can do a comparative market analysis (CMA) of similar property sales in the area to make a side-by-side comparison. These reports are often used by sellers to set the prices, but prospective homebuyers can also use them to evaluate prices to make competitive bids. 

Where is the housing market headed in 2022? 

All signs say that the competition among home buyers will be just as fierce as it was last year. Homes are selling faster: in January 2022, the national average home sales time was 61 days, 10 days faster than in January 2021 and about a month faster than during the years prior to that. The prices of homes are rising, we saw a jump of more than 10% of median listing prices in January 2022 over January 2021. But the outlook isn’t dire — lots of market watchers expect this appreciation in home prices to slow over the course of 2022. Redfin’s chief economist Daryl Fairweather predicts that when average mortgage rates hit 3.6%, we’ll see competition cool to match the more moderate levels we had in 2018. 

Buying Can Still Beat Renting 

Even with the recent rise in home prices, buying a home can still be more affordable than renting in lots of places. According to Realtor.com, the per-month cost of buying a home is less than renting in over 75% of America’s largest metropolitan areas. Government data shows that rents are rising across the U.S., climbing 3.8% over the last year alone. The national average pales in comparison to some of the country’s hardest hit areas, such as Orlando with almost a 30% rise in rental prices, or Austin with rent prices jumping 40% and more. With rent high everywhere, and no indications they’ll drop, buying a home may make more sense now than ever. 

No matter the price you pay for a new home, City Lending has a range of loan programs to suit your needs. Contact a loan specialist today to talk about your next move. 

These days, more and more people are looking to buy their dream homes, especially as remote work and work-from-home setups have become an enduring trend. A 15 point increase in requests for home tours and other home-buying services, along with a 11% rise in Google searches for homes, indicate an uptick in demand to buy houses in the country. However, there is a definite worry about affordability when it comes to housing, especially as hefty price tags on available residences have kept the market just as competitive as before, if not more.

According to the latest reports from analysts, it’s not all bad for existing homebuyers and aspiring house hunters. As previous data shows, timing matters in the housing market, and working on different approaches to home buying – like through a reliable lender – can help advance you towards more affordable housing goals. Below, we discuss whether house hunters should buy now or wait, and why.


What is your financial situation?

Counter to the rise in home demand, there is a considerable lack of supply. Along with rising prices and interest rates, the housing market may seem like a highly competitive space with wealthy homeowners fighting for what little property is left. It can be overwhelming, but knowing where you stand financially can help you better strategize your home buying journey. Following the four key components of affordability, ask yourself:

  • How much do you have saved for a down payment?

  • How much does your household earn?

  • What debts do you carry?

  • What is your credit score?


Familiarizing yourself with these components will help inform your decision on whether or not to wait. For example, taking the time to improve your credit scores before committing can save you from higher interest rates in terms of your monthly mortgage payments. Alternatively, many young homebuyers are compromising by living with family for a significant amount time to save up for a down payment. Getting this out of the way when you’re able to can help you get better loans to buy sooner than later in case interest rates end up increasing.

What kind of home is best for you?

Buying a home is a huge purchase and a big commitment. With shifts to digital and remote ways of working taking place in recent years, this has provided homebuyers with opportunities to be more flexible when buying homes. Homes in areas away from busy cities and urban hubs, for example, are considerably cheaper. This makes them a perfect option for buyers who work from home, or aren’t required to be present in the office on a consistent basis.

The lifestyle you expect to live is as much a factor to consider as money. Condos and townhouses offer lower maintenance costs in the long run, and are perfect for smaller households when compared to single-family homes. If the household grows, homebuyers looking for a side income can even invest in renting out purchased properties to passively earn back what they spent and look into bigger properties for family use.

What does the future look like?

In a previous post, we talked about the rising mortgage and interest rates. While the market may seem bleak or intimidating in its current condition, housing experts also believe factors such as supply have a high chance of returning to pre-pandemic levels by the end of 2024. If you are financially able, buying now while others may be intimidated by the prices can give you an edge. Conversely, taking some time to get your finances in order can benefit you when it comes to securing better loans and lower interest rates.

Working with experts can help you make better decisions for the loans you need, making sure you don’t get trapped with high interest rates or hidden charges. The future of fintech suggests that big data is the future of loans, as more online lenders are now using algorithms, which predict potential defaults better than FICO scores do. Data is also leveraged precisely to identify customers who fit various products well — which can give you peace of mind, as an aspiring borrower. Here at City Lending for example, we find the right programs to fit your needs and profile, making sure you get some of the lowest down payments and interest rates along with a premium service.

And if you’re still unsure, it’s worth considering that waiting it out in the market’s current wild conditions could result in even higher interest rates in the future. At the end of the day, buying a house is ultimately a huge investment, which comes with benefits such as privacy and a financial investment that for the most part will weather most economic storms.

Find out if this is the right time for you to get a house by contacting one of our loan officers today.


Content intended only for the use of citylendinginc.com

Written by Alicia Christopher

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