Overbidding is offering more than the asking price for a house, which is common is most areas with high demand and low supply.
Chances are, especially in the Amsterdam region, that you have to make an offer above the asking price of the house. Currently it is almost standard that there is a lot of interest for the same house. Therefore, often you’ll have to overbid on the price to win the bidding. How much should you overbid, and is this a wise thing to do? How do you finance this?
What is overbidding on a house?
Overbidding on a house means offering more than the asking price of a house, which is very common in popular areas where the demand is high and supply is low. While overbidding is normal in most parts of the Netherlands, it is important that you set a maximum budget based on your maximum mortgage capacity and to avoid bidding based on emotion to prevent buyer’s remorse.
Why overbidding is common
High demand and low supply: The Netherlands suffers from a shortage of housing where as of now, buyers need to bid higher to buy a house.
Low interest rates: Low interest rates may seem to make borrowing more affordable, this can be misleading in terms of tue costs and risks.
Low pricing: Some house sellers encourage listing houses below market value to make sure bidding is necessary with popular homes.
Increasing number of offers are above the asking price
In the current housing market, it is becoming more and more typical that the offer price is higher than the asking price. Calcasa, an independent company that is specialized analyzing and valuating real estate, researched this. They found that 28% of houses sold in The Netherlands were sold above the asking price. Also, this phenomenon is becoming more widespread in the Netherlands in cities such as Groningen, Haarlem, Amstelveen and Amersfoort.
What does overbidding mean for your mortgage?
As of 2018, you can only borrow 100% of the appraisal value. When purchasing a house, there are also purchasing costs which means that your own contribution can increase when overbidding on a home. An example:
In the calculation below, you can see how much the own contribution has to be when the house has an appraisal value of €200.000 and a purchasing price that is €10.000 higher of that appraisal value.
- Appraisal value: €200.000
- Purchase price: €210.000
- Difference appraisal value and purchase price: €10.000
- Purchasing costs payable by purchaser (6% of purchase price): €12.600
Total own contribution: €22.600
Can others help to bring in more own contribution?
There are different ways to finance the own contribution. You can make a claim on your savings for example or make use of a donation by your family. The advisers at A&H Finance are happy to help you with finding solutions.
What does overbidding mean for your mortgage?
Tax appraisal vs purchase price
Mortgage lenders in the Netherlands base the maximum mortgage capacity on the official tax appraisal value of the property, not on the actual purchase price. This means that if you overbid and pay above the appraisal value, the extra amount will not be included in your mortgage loan. The loan is limited to the amount of the appraisal value to ensure the mortgage loan remains within safe financial boundaries.
Calculating additional own contribution
For example:
If the tax appraisal value of a property is €300,000, but you succesfully overbid €10,000, and pay €310,000. The extra €10,000 has to be paid by your own funds as it can not be included within the mortgage loan. Additionally you will need to cover the purchase related costs where applicable, such as transfer tax or notary fee’s.
How to finance your additional contribution?
Personal savings
One of the most common methods to finance the extra amout when you overbid on a house, is by using your personal savings. This means you pay the difference between the purchasing price and the tax appraisal from your personal savings account. For this reason it is important to have enough savings to ensure you can comfortably cover any additional costs without increasing your financial risk.
Receiving a gift from family
Another method if it is possible in your personal situation is to receive financial support by your family, this can be done in form of a gift or a loan, to help cover for overbidding. Gifts are always helpful as they do not have to be paid back, mortgage lenders or banks often require a small formal notarized document to recognize these funds. To avoid complications within the family and with your mortgage lender, loans should always be documented and be transparant.
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