How much over asking price should I offer on a house in 2025?

How much over asking price is too much?

In a hot market, experts recommended offering at least 1% to 3% above the asking price in a bidding war. But today’s home buyers may face less competition. In June 2022, the average home actually sold for about 1% below its list price, according to Redfin.

Of course, every market and every home is different, and many buyers will still need to pay above the list price. But how much is too much?

The answer will be different in each case. The best thing to do is set your budget and expectations ahead of time so you know how much you can afford to offer — and when to walk away. This will make negotiations a lot easier.

In this article (Skip to...)

• How much to offer
• Potential issues
• Today’s market
• Set your budget
• Define dealbreakers
• Avoid overpaying
• Other strategies

How much should you offer over the asking price?

The housing market ran red-hot from 2020 through the first half of 2022. As a result, many homes sold far above their list price. And buyers faced extreme bidding wars — especially in desirable locations and on underpriced properties.

Offers typically need to exceed at least 1 to 3 percent over list price when there are multiple competing buyers.

“It’s not unheard of in these situations to see the winning bid come in thousands over list price,” says Philip Kranefuss, head of Real Estate in Colorado with Homie. He adds that offers typically need to exceed at least 1 to 3 percent over the list price when there are multiple competing buyers.

On particularly competitive homes, an offer could come in far above the 1-3% threshold. But as a buyer, there’s no golden rule for “how much is too much.” It comes down to what you can afford, what your lender will finance, and how much cash you have in the bank.

Fewer buyers today have to offer above the asking price

Fortunately, these types of bidding wars are becoming less common, according to Realtor and real estate author Jason Gelios. “Many home sellers got a reality check in 2022, as they learned that the demand for their homes decreased slightly, leaving them to adjust their price downward,” says Gelios.

“In 2022, home buyers should expect to pay at or around the asking price on a home, provided the home is priced accurately and in good shape,” he continues.

Phillip Candella, a real estate agent in Colorado, agrees.

“The market conditions in the Denver Metro area have certainly slowed in the last couple of months. While we were seeing low inventory and multiple offers, we have returned to a more balanced market,” says Candella. “Currently, I am seeing more homes sell for asking price or just below asking price,” he adds.

Price isn’t your only negotiating tool

Even in a bidding war, price is not always the only consideration a seller has.

“Certainty of closing, i.e. no financing contingency, no inspection contingency, and no appraisal contingency, be it one or all, may be a top consideration,” says Realtor and real estate attorney Bruce Ailion.

Potential buyers who can best meet a seller’s top considerations are more likely to have their offers accepted.

The good news is, you don’t have to go it alone. Your real estate agent or Realtor will be with you every step of the way during the offer process. So use their expertise — along with financial advice from your loan officer — to craft an offer that’s competitive and makes sense for your budget.

Potential issues when you offer above asking price

Making the highest offer can come back to haunt you.

“You may not qualify for your mortgage loan, because the loan won’t appraise for the amount you offer,” warns Suzanne Hollander, a real estate attorney, broker, and professor of real estate at Florida International University.

This is why it’s important to get prequalified or preapproved for a loan. “You can know ahead of time your maximum home buying budget will be,” reminds Jon Meyer, The Mortgage Reports loan expert and licensed MLO.

Keep in mind that a lender won’t let you borrow above the home’s appraised value. You can still pay more than the home is worth, but you may have to come up with the difference in cash. There are a couple of ways to do this.

What to do about a low appraisal

If the home doesn’t appraise for the full offer amount, you may have to come up with the difference in cash.

For instance, say a home is offered at $300,000 and there are multiple bids. To win, you offer $320,000. But the appraiser searches the area for comparable homes and finds that the highest justifiable price is $310,000.

You’d have to come up with $10,000 cash above and beyond the down payment to cover that appraisal gap.

Or, you might change the makeup of your loan to cover the appraisal gap.

For instance, say you planned on a 20% down payment of $62,000 but there was an appraisal gap of $10,000. You could cover that amount out of pocket and simply put less toward the down payment. However, you might no longer have 20% down and end up having to pay PMI, at least for a little while.

An appraisal contingency can help

If you’re worried your offer price might exceed the new home’s appraised value, be sure to include an appraisal contingency in your offer.

This contingency won’t fix a low appraisal, but it will release you from the contract to buy if the appraisal comes in too low for your mortgage lender to move forward. This way you won’t have to risk losing your earnest money deposit because you overshot the home sale price by a few thousand dollars.

Is an escalation clause a good idea?

Some real estate brokers suggest adding an escalation clause to your offer. This type of clause automatically ups your offer price as higher offers come in. You can set a maximum offer in your escalation clause.

This may seem attractive when you’re competing in a seller’s market, but there’s a downside: Your escalation clause shows the homeowner exactly how much you’d be willing to pay for the home — not a great tactic in case you need to negotiate further.

When considering something as important as a home purchase, many potential home buyers prefer making their counter offers the old-fashioned way rather than opting for autopilot.

Today’s home buyers face less competition

Purchasing a home during the rest of 2022 and much of 2023 should look different than it did for the past couple of years when sellers could essentially choose their price.

“What we are seeing in 2022 is a cooling of the housing market, an increase in housing inventory, although still relatively low, and an increase in mortgage rates,” says Gelios.

“What we are seeing in 2022 is a cooling of the housing market, an increase in housing inventory, although still relatively low, and an increase in mortgage rates.”

–Jason Gelios, Realtor

“In addition, rapidly rising interest rates (almost 6% now) and an uncertain economy have caused many buyers to shy away, as they can no longer afford the home that would entice them to purchase,” adds Candella

In short, today’s buyers shouldn’t expect the intense competition that they did last year.

But even when they steer clear of outright bidding wars, buyers should be prepared to pay the asking price for a home they really want — as long as it’s still within budget.

How to determine your maximum home buying budget

To help determine the highest home sale price you can afford, estimate your maximum home buying budget.

“Your max budget for a home should always come down to what you can afford,” says Tyler Forte, CEO of Felix Homes. “Set a monthly budget and make sure you are accounting for upfront costs like lender points, closing costs, and a budget for repairs and maintenance once you’ve moved in.”

It may help to work backward and evaluate a monthly payment you’re comfortable with.

“For example, if you can just barely afford a $1,500 monthly mortgage, anything beyond that is out of your comfort zone. With that affordability insight and your known interest rate, you’ll be able to determine your max offer,” recommends Hollander.

You can use this mortgage payment calculator to estimate how large of a mortgage payment you can afford on your monthly budget.

“When calculating your home buying power, remember that your mortgage should only account for 30% to 40% of your monthly take-home pay,” Forte advises.

Ask questions and define deal breakers

It’s also a good idea to ask plenty of questions that can help you decide if the house — and its higher sale price — are worth it.

“Being strategic about what you want is critical,” says Philip Kranefuss, head of Real Estate in Colorado with Homie. As a starting point, he recommends asking yourself:

• Is the location right for you?
• Is the size of the home sufficient?
• Is it a good school district?
• Are there things you are willing to give up if they are not at your price point?

Overall, examine if the price you’d need to pay to get the home exceeds its desirability and functionality.

“Just because the market is competitive and there are many multiple offer situations doesn’t necessarily mean you should pay over the asking price,” says Dustin Singer, a Realtor and investor.

He suggests finding out:

• Is there another home for around the same amount of money that offers better upgrades?
• Can you purchase a home for slightly less that needs updating and then have those renovations made?

Of course, there will always be some clear dealbreakers.

“If there are structural or environmental problems you discover during the appraisal that would be costly to fix, it’s probably best to look elsewhere,” Hollander says.

And if the lender won’t finance your purchase because the appraisal comes in significantly below the purchase price, you may not have a choice but to back out.

How to avoid overpaying for a house

Sometimes it’s unavoidable: You may have to initially offer a price higher than you had anticipated or counteroffer with a higher dollar amount. But you want to avoid making a regrettable mistake, too.

To ensure that you don’t overpay beyond a home’s true value, your real estate agent should research recently sold comparable properties, also known as comps.

“Just because a house sold for over the asking price, that doesn’t necessarily mean it was a justifiable price,” Singer cautions. “Your agent should check the current market for other active properties currently listed to make sure you don’t pay over and beyond what the characteristics of the home are,” he continues.

On the other hand, a home is worth what a buyer will pay. “If you get over obstacles such as the difference between value and offer, the home is worth whatever someone will pay for it,” counters Meyer.

You may need to broaden your horizons

“It’s often advisable to expand your search to include homes in more affordable places where your dollar can go farther,” Kranefuss recommends.

Don’t be afraid to look at homes that may be a bit outdated or require an update or two before they become your dream home. “These properties won’t stir up as much competition, and you are more likely to have your offer accepted at list price or less,” says Singer.

Shopping outside your local market’s hottest neighborhoods can be key to finding more budget-friendly home values, especially if you’re a first-time home buyer who needs to make the minimum down payment.

Other strategies to get your offer on a house accepted

Getting a seller to accept your offer doesn’t always require a higher price.

“Instead, try making a larger good faith deposit. Sometimes this shows sellers that you have skin in the game and are a more serious buyer,” notes Hollander.

Before you can make an offer, you also need to get a mortgage preapproval letter showing you can afford to finance the purchase.

“Ask your lender to call the seller’s agent and vouch for your financial health.”

–Tyler Forte, CEO, Felix Homes

Better yet, “ask your lender to call the seller’s agent and vouch for your financial health,” advises Forte. “The lender should explain that they’ve reviewed your employment history and financials and have extreme confidence in your financial strength as a borrower.”

If you have the cash, you could try making a cash offer on the home. Cash buyers often have an advantage over buyers using a mortgage, especially in hot markets.

“A seller may feel more comfortable that a buyer will definitely close if it’s a cash purchase not subject to a financing contingency,” Hollander notes.

Cash offers have some drawbacks

There are drawbacks to consider when you buy with cash as well. For example, when you have too much cash tied up in your home, you can’t use the money elsewhere.

What if you needed the cash for something else later, like an emergency medical treatment or car repair? You might have to borrow money then, at a higher interest rate than your mortgage lender would have charged.

An offer letter can help in seller’s markets

“If you can’t or don’t want to make a cash offer, you might also try giving the seller a personalized letter along with your offer explaining why you love the home,” Forte adds.

In some cases, knowing the home will be going to a person or family who will cherish it can be enough to sway a sentimental seller.

Don’t overdo the contingencies

Lastly, avoid putting extra contingencies in the offer if at all possible. Contingencies complicate the picture for home sellers. Unless they’re in a buyer’s market, some homeowners can afford to toss out offers that include too many contingencies.

Appraisal contingencies and home inspection contingencies almost always make sense. But adding more can make your offer price less attractive than the competition.

For more information, see: How to make a winning offer on a house: 7 Strategies

How to maximize your home buying budget

Need a bigger budget to afford a higher-priced home? There are a few things you can do to improve your bottom line in any real estate market.

“First, save up for as big of a down payment as you can afford so that you don’t have to borrow as much money and you can avoid having to pay private mortgage insurance,” Singer recommends.

Also, aim to improve your credit score and lower your debt-to-income ratio before applying for your home loan.

“Work to pay off any outstanding debts, pay your debts on time, and avoid opening new credit accounts. Also, check your free credit reports and clean up any errors, negative accounts, or missed payments you see on those reports,” adds Singer.

Something else to keep in mind is that today’s mortgage rates are still low by historical standards (although, current market rates may not feel low). Lower rates help home buyers maximize their budgets.

When rates are lower, it reduces the amount you have to pay in mortgage interest each month. This means you can afford a larger mortgage payment and thus, a more expensive home price.