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Bidding war going ABOVE asking price

Here's one for you that's got me thinking through so many aspects.

We've been looking for a house for ages - over a year. We've finally found one that's beautiful. We love it. The area isn't as good as we've been looking at, but it's OK. The house is by some stretch the best in the area (though, as I say, it's not a "bad" area). This means it's hard to use other properties' recent selling prices to gauge the value of this one. It's on at 129,950, and only came on last week - 3-bed, large garden, big lounge, conservatory - will need new double glazing at some point, though. Lots of potential for converting storage houses and extensions. Mouseprice values it at 128,700, though I have no idea how accurate those valuations are. It's some 15,000+ above the value of other houses in the road, for the reasons I've stated. The last house in the street to sell was in August 2008 at 120k, a house which has no conservatory, a much smaller garden and plot, no car port, and is uglier (!). Mouseprice now values it at around 103k. Not sure how accurate this is as prices haven't fallen that much really up here.

Anyway, after the 1st (extended) viewing we loved the house and made an offer of 120,000. The vendor wanted to see what the other viewers thought, and someone came in at the asking price. We raised our offer to 132,000, and now that has been met. We are both now being invited to make a final offer by 1pm tomorrow for the vendor to make his decision (highest one gets it, I assume, as we're both ready to proceed).

We can afford 135,000 without any problem with a 10% deposit (mortgage with Natwest), BUT my concerns are that the bank's valuation will come in below this (if our offer is accepted). However, I am thinking that if this is the case, then we tell the vendor that we can only get a mortgage for x amount given the bank's valuation, and if he can't drop then we pull out. This is one way - in my way of thinking - of preventing us from overpaying.

HOWEVER, is it always/generally the case that the value given by the bank giving the mortgage is a true (conservative) reflection of the house's value? Is it possible they could just say it's worth our agreed price to get the mortgage through? I know a house is worth what someone is prepared to pay for it, and this house is clearly not going to have problems selling if it has 2 bidders only 4 days after being put on. But at the same time, I'm terribly worried about overpaying and being left in serious trouble in 5 yrs when the fixed-rate mortgage ends and finding myself in negative equity. Equally, I am aware that being in a bidding war is the best way to ensure you pay over the odds.

Any thoughts?? I have till 1pm to get my renewed offer in (or say I'm sticking at my current offer, which is still 2k over the asking price!). In particular, any thoughts or help re. the way bank's value a property? Am I right in thinking that it is a good way to judge if I have (wildly) overpaid, and hence prevent myself going through with the purchase?

Thanks!
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Comments

  • alexlyne
    alexlyne Posts: 740
    First Post First Anniversary Combo Breaker
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    Lenders are being very conservative these days with their valuations - I don't think it's possible that they will want to lend you more than they think it's worth - it's what got them into trouble in the first place. Once bitten, twice shy - at least for a few more years.
  • NickDurham
    NickDurham Posts: 102 Forumite
    alexlyne wrote: »
    Lenders are being very conservative these days with their valuations - I don't think it's possible that they will want to lend you more than they think it's worth - it's what got them into trouble in the first place. Once bitten, twice shy - at least for a few more years.

    Thanks for that - that's what I thought. So basically I COULD use the bank's evaluation as a yardstick to judge whether I am overpaying and hence pull out having only paid for the valuation and a hundred quid or so for the solicitor to receive a few letters from Natwest?? Like I say, that's my preferred course of action: get accepted even if it's at a high price, then if the valuation comes in lower, either use this to get a lower price in discussion with the vendor OR pull out if he won't budge. Sound a reasonable course of action??
  • kunekune
    kunekune Posts: 1,909 Forumite
    If you are thinking negative equity could be a issue in five years, that makes me wonder.

    a) You don't expect to have paid off any capital? If you don't think you can overpay significantly at current interest rates, you probably shouldn't be affording the house. Interest rates are low. You need to think in terms of interest at at least 9% when working out affordability, and in the meantime, add to your equity by overpaying as much as possible. If your mortgage doesn't let you do that, match what you could overpay in a separate account and then use it to reduce the mortgage when you refinance.
    2) You think prices are going to drop so low that ordinary repayment and a bit of overpayment will STILL have you in negative equity in five years. If you are so negative about the future, then you're not in the right frame of mind for buying, and would be better hanging around HPC (and this board) for a few more years.
    Mortgage started on 22.5.09 : £129,600
    Overpayments to date: £3000
    June grocery challenge: 400/600
  • Blacksheep1979
    Blacksheep1979 Posts: 4,224
    Combo Breaker First Post
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    are you sure there is another person bidding on the house?
  • jamtart6
    jamtart6 Posts: 8,302 Forumite
    depends how much you want the house. will you be kicking yourself in a couple of months if you dont add another £2k on to your offer? I wasn't convinced we were actually bidding against anyone, but for the sake of 2k it wasn't worth losing the house over (£30k cheaper than anything else that has come up before and since!) We then said to the estate agent "we have bled every relative dry of money, we have no more money so if we don't get it this time, we will NOT be upping our offer this is our LAST and FINAL offer" - we meant that as well as we decided on a final price and stuck to it. To be on the safe side, stick and extra £10 on the offer e.g. £120'010 ...just in case someone goes up to £120 000, yours will still be the highest bid.

    Funnily enough we got the house I 100% think we were played by the EA's but we still know we got the house £30k cheaper than anything else in the area so are happy.

    :ABeing Thrifty Gifty again this year:A

  • NickDurham
    NickDurham Posts: 102 Forumite
    are you sure there is another person bidding on the house?

    The thought has crossed my mind. Is there any way of checking whether this person actually exists?
  • NickDurham
    NickDurham Posts: 102 Forumite
    jamtart6 wrote: »
    depends how much you want the house. will you be kicking yourself in a couple of months if you dont add another £2k on to your offer? I wasn't convinced we were actually bidding against anyone, but for the sake of 2k it wasn't worth losing the house over (£30k cheaper than anything else that has come up before and since!) We then said to the estate agent "we have bled every relative dry of money, we have no more money so if we don't get it this time, we will NOT be upping our offer this is our LAST and FINAL offer" - we meant that as well as we decided on a final price and stuck to it. To be on the safe side, stick and extra £10 on the offer e.g. £120'010 ...just in case someone goes up to £120 000, yours will still be the highest bid.

    Funnily enough we got the house I 100% think we were played by the EA's but we still know we got the house £30k cheaper than anything else in the area so are happy.

    As my above post, is there any way of finding out whether the person exists? One of the owner's works at my University (where I work) in another department... I'm guessing contacting her to check would be out of order!?!?

    If we were getting it cheaper I wouldn't mind - my concern is precisely that we're going OVER value because of this bidding war.

    EDIT: The exact same thing happened 10 days ago on another house we bid for - we ended up not raising our offer (again over the asking price). This was a different agent - it now says "sold", so I'm guessing that was genuine.
  • NickDurham
    NickDurham Posts: 102 Forumite
    kunekune wrote: »
    If you are thinking negative equity could be a issue in five years, that makes me wonder.

    a) You don't expect to have paid off any capital? If you don't think you can overpay significantly at current interest rates, you probably shouldn't be affording the house. Interest rates are low. You need to think in terms of interest at at least 9% when working out affordability, and in the meantime, add to your equity by overpaying as much as possible. If your mortgage doesn't let you do that, match what you could overpay in a separate account and then use it to reduce the mortgage when you refinance.
    2) You think prices are going to drop so low that ordinary repayment and a bit of overpayment will STILL have you in negative equity in five years. If you are so negative about the future, then you're not in the right frame of mind for buying, and would be better hanging around HPC (and this board) for a few more years.

    We're getting a 5.99% repayment mortgage. Things will be OK but not great for the 1st year, - we will be able to overpay by about 2k. Following years by a bit less initially if we have another baby, but due to pay rises and student loan coming to an end, we should be able to average 2k a year. My only worry about negative equity is if we overpay by 15k above value now and prices stagnate. We won't be in "negative" equity but mortgage deals for such a poor LTV wouldn't be great. Hence my wondering whether I can use the banks valuation to judge whether I'm overbidding.
  • Blacksheep1979
    Blacksheep1979 Posts: 4,224
    Combo Breaker First Post
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    not at all out of order in my view - it's one of the largest purchases you're ever likely to make and if there is another party I bet they'll be thinking the same thing too. You'll know instantly by the look on their face if you mention it to the seller if there is someone else or not, go see them unannounced at work and see what they say - they might not even know what's going on. Play it like you just want to get to know them or something as you both work in the same place.
  • NickDurham
    NickDurham Posts: 102 Forumite
    not at all out of order in my view - it's one of the largest purchases you're ever likely to make and if there is another party I bet they'll be thinking the same thing too. You'll know instantly by the look on their face if you mention it to the seller if there is someone else or not, go see them unannounced at work and see what they say - they might not even know what's going on. Play it like you just want to get to know them or something as you both work in the same place.

    Hmmm I'm seriously wondering now. It would be a real shame if we ended up losing a house at a decent price because of something like that. TBH if they are getting us to overpay then they'll lose the sale because we'll pull out if the valuation comes in low.
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