Buyers benefit most when staying in home long term

Given the recent negative press about the state of the residential real estate market, it's understandable that buyers would be reluctant to offer more than the asking price. Yet, some buyers are finding that a list-price offer is not enough. Multiple offers are making a comeback in some markets.

A couple from San Francisco, who had resolved to pay no more than the list price, is now resigned to do so for the right property. They were surprised to find that there were multiple buyers seriously interested in each of the first three listings they considered buying. The one they chose to offer on received three offers. The winning bid was for $10,000 more than they offered.

Exhausted and disappointed from the experience, the San Francisco couple realized that if they wanted to buy a good house in their first-choice neighborhood, they would have to be prepared to compete.

Some buyers in this situation would decide to wait to buy until there are more listings and fewer buyers. A downside of this approach is that waiting in a market that's short on inventory could mean paying a higher price later.

Although appreciation has been flat to negative in many areas of the country, there are pockets of the market -- like the starter-home markets in Oakland and Berkeley, Calif., and Brooklyn, N.Y. -- where there aren't enough homes for sale to satisfy the demand. This tends to put an upward pressure on prices.

HOUSE HUNTING TIP: Does it make sense to pay over the asking price in a market that could soften further? The answer depends on how much over asking you have to pay and how long you plan to own the property.

Some sellers are still pricing their homes low to stimulate buyer interest. In this case, paying over the asking price may not mean paying over market value. Check the sale price of the most recent comparable sales in the area to determine if paying over asking is too much. Your real estate agent can help you with this.

Even if a listing is fairly priced, paying more might make sense depending on your circumstances. If the house will serve your long-term needs and you're confident that you won't be moving for five or 10 years, paying an extra $10,000 is probably worth it. However, if your future is uncertain, it could be risky to pay more than the asking price.

A job transfer that forces you to sell in a soft market soon after buying, could leave you in a precarious position -- particularly if you financed the purchase with a mortgage for 100 percent of the price. Unless you have financial assistance from your employer, you might have to pull money out of savings to cover your selling costs. If the value of your home has declined you might not be able to sell for enough to pay back the mortgage.

Another factor to consider before offering more than the list price is whether the house will appraise for your offer price. Typically, a lender's mortgage commitment is conditioned on an appraisal of the property that substantiates that the buyer is not overpaying. Most lenders require that the appraisal report include three comparable listings from the neighborhood that sold within the past six months.

Due to the general slowdown in the housing market, some lenders are tightening up on their appraisal requirements. Recently, an appraiser who was appraising a property in Oakland's Upper Rockridge neighborhood was instructed by the lender to use comparable sales from the last three, not the last six, months.

THE CLOSING: To protect yourself, include an appraisal contingency in your purchase offer so that you won't risk losing your deposit should you back out of the contract because the property doesn't appraise for the purchase price.