Family home tour with a realtor.

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She was ready to pay so much.

Key points

  • Many homebuyers lose out to competing offers.
  • Recently, a friend of mine suggested making a cash purchase to get a head start, but it still didn’t work.

There’s a reason buyers have been so frustrated with today’s housing market. Home prices are exorbitant, and the limited inventory has meant that sellers may accept numerous offers – offers that are usually well in excess of their asking prices.

Recently, a friend of mine tried to get an edge in a bidding war by offering to pay for the purchase of a house in cash. But she lost the house in question for one serious reason.

When a house just isn’t worth its price

My friend decided to liquidate part of her investment portfolio earlier this year before the stock price really deteriorated. She knew she had outgrown her apartment and wanted to move into a small detached house. She also knew how competitive the housing market is today. And so she deliberately loaded herself with cash so that she could forego a mortgage and gain an advantage over other buyers.

She recently found a home that seemed to fit the bill. It was close to her place of work, next to a park she likes to run in, and reasonably priced. But the last one didn’t change anything.

While the house was listed for $400,000, as soon as offers started rolling in, her real estate agent informed her that buyers were offering over $450,000. It was out of my friend’s price range and comfort zone. She couldn’t pay more than $420,000 for the house, so she lost it.

But it wasn’t just that she felt uncomfortable offering more than $420,000. She also knew that the house wasn’t really worth more. A few years ago, the same house would probably have sold for $350,000, she told me.

Now, the $400,000 price tag may have looked reasonable given the circumstances of today’s housing market. But my friend insisted that the house was in no way worth more than $450,000 (and, to be clear, her real estate agent agreed), and so she made the decision to refuse.

What also didn’t help was that the seller in question was in no hurry to close the deal. So in this case, the cash offer didn’t give my friend too much of an edge over the competition.

A strategy that is not guaranteed

Cash offers help buyers navigate today’s tough housing market. But the reality is that sometimes even a cash offer isn’t enough to win over a buyer—not when there are competing buyers willing to actually pay.

My friend is disappointed that she lost the house in question, but she also knows she made the right choice by not buying when the price got too high. And this is a good lesson for buyers to take to heart.

It’s easy enough to fall in love with a home, but it’s also important to be realistic about its value. Overpaying for a home in any market is a move that can backfire, especially when it means handing over a huge pile of cash and investing that money in an asset that may have been grossly overpriced.

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