Why You Should Also Shop For A House Above Your Budget

There’s an age-old saying that we frequently hear from conservative home buyers and financial planners that one should only buy a house that is within their household budget.

This actually makes perfect financial sense as how can any pragmatic adult with responsibilities to shoulder put their family at risk by purchasing a house which he cannot realistically afford.

It’s one matter to buy the biggest house one can afford. But it’s totally a different problem when one buyer a house that is totally out of this financial capabilities.

Yet when we set a budget to purchase something, we usually know that we can actually afford something that is above that self-imposed limit. It just a matter of how much value we get from spending more money.

For example, most of us have probably went through the experience of buying a smart phone by now. And often times, we end up buying a phone that is over the budget that we’ve already set for the purchase. This often occurs when we realize that for just a bit more money, we get better hardware, better specifications, more features, more credible brand, and a better looking phone overall.

So it’s usually not a matter of how much money we can spend, but how much value we can get by spending more.

This applies to buying real estate as well.

When we set a budget to purchase a home, we are limiting ourselves to a range of properties that are within a certain price range.

This instantly eliminates all property listings with an asking price above your limit. You agent would also restrict himself from looking at listings above the price ceiling as he don’t want to waste his time.

But this would also prevent you from discovering houses that are slightly above your budget but are well worth the money.

When we add the norm of most home owners would overprice their homes, not expanding the scope of your property search a little upwards could mean that you might miss some great deals available.

For example, let’s say you have set a home purchase budget of $300,000 and your agent finds you all those that are within that price range. And they all only worth $250,000. What you don’t know could be that there is a house priced at $330,000 but worth $380,000! And you missed the listing simply because you have been too restrictive with your budget.

Does a $300,000 house worth $250,000 offer better value or one at $330,000 worth $380,000?

Let’s not talk about how we derive value as that is a very extensive topic.

But you should be able to see that from the above example that it’s a $130,000 equity swing from an additional $30,000 investment.

Why would someone who can afford that $30,000 not go for it.

Moreover, we have yet to factor in the price negotiation. It’s not impossible to get a seller to reduce the action price.

A big problem here is that when we impose strict budgets on ourselves, we tend to purchase things out of affordability rather than good value.

So we might be psychologically inclined to buy the $300,000 house instead of the one at $330,000.

Another problem is that a home buyer might not be able to discover the deal. This is caused by being too obsessive with the budget and not expanding the scope of the property search.

The gist of all these is that nothing is ever concrete in the real estate market. And if you don’t allow yourself some flexibility with your budget, you are limiting the possibility of unearthing properties that offer great value for the selling price they are set at.

It’s not that you should make it a point to find properties above your budget. But you should allow yourself to look at properties that are up to 10% above it.

The more houses you look at, the higher the chances of finding value in the real estate market.

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