With the heat of our current market conditions, I think it is really important to talk about the consequences of “overpaying” for a home. Sure, in multiple offer situations buyers are often offering to pay over asking for a home. “Sold over asking” – we are hearing of this scenario over and over again. However, there are risks associated with overpaying for a home.
But what a lot of people aren't talking about is what happens if you overpay and there is a shortfall of money?
Here’s an Example:
Let’s say a home is listed for $650,000 and you offer $850,000, and your offer is accepted… YAY! Although you’ve been pre-approved and know you can spend upwards of 900,000, it doesn’t mean the home you purchased qualifies for a purchase price of 850,000. Let’s say the bank appraises the home at $775,000.
What happens now? There's now a shortfall of $75,000
- The buyer is responsible to come up with the shortfall balance
- If the buyer can’t come up with that extra $75K, they will be in breach of contract and run a risk of losing their deposit
- The seller could pursue legal action if they can't sell the home for that amount of money again
The moral of the story is, please ensure you are working with a trusted real estate professional who cares for their clients' well-being and can help you navigate what can be a tricky market at times. It’s important to understand the risks of overpaying for a home.
Message me if you have any questions! I'd love to chat and help inform you on the current Guelph real estate market.
