Risks of Overpaying for a Home

With the heat of our current market condition, 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.
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What happens now?There’s now a shortfall of $75,000
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1. The 𝗯𝘂𝘆𝗲𝗿 𝗶𝘀 𝗿𝗲𝘀𝗽𝗼𝗻𝘀𝗶𝗯𝗹𝗲 to come up with the shortfall balance
2. 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
3. The seller could pursue legal action if they can’t sell the home for that amount of money again
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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.

Written by Allison DeMontmorency, Sales Representative

Learn More About Allison

Mobile: 226-820-1607 | Office:  519-821-3600 | Email: [email protected]