This is what to consider when coming up with your offer:
1. The advice of your realtor. The realtor is a lot more familiar with the market and the process than you are. Even though they have a vested interest in the price being higher, carefully consider what they tell you.
2. How much the bank is willing to loan. You obviously can't offer more than you can afford, but you should have realized whether a particular house was out of your budget long before it came time to make an offer.
3. How much the house is worth. We all want to avoid paying more than something is worth, and this is especially true when buying a house that you might want to sell someday. But you might ignore this if #4 is more important to you....
4. How much you want the house. There is nothing wrong with paying more than a house is worth if you really want the house and you can afford it. If the seller is asking $200k, but your realtor and a market analysis suggest the house is worth only $180k, you can certainly pay the $200k anyway if the house is worth that much to you. Of course, even if you are willing to pay the $200k asking price, it usually won't hurt to offer less to try to get a better deal, unless it's a hot housing market where another buyer might outbid you.
Offering more than market value for a home you really want works best when you don't intend to sell the home any time soon. An overpriced home takes longer to appreciate, but if you're not selling it then what do you care?
by Michael Bluejay