If you overbid on a property, the bank will not finance the full bid. The bank bases the maximum mortgage on the appraised value of the property, not on the price you offer. The difference between your bid and the appraised value must be paid out of your own funds. In this article, we answer the most frequently asked questions about overbidding and financing, so you are well prepared.
How much of the overbid amount will the bank finance?
The bank finances a maximum of 100% of the appraised value of the property. If you bid more than that appraised value, the bank will not finance the difference. That portion must be paid entirely from your own savings or other personal funds. The overbid amount above the appraised value therefore falls outside the mortgage.
Suppose you buy a property for €400,000, but the appraiser sets the value at €375,000. The bank will then provide a maximum mortgage of €375,000. The remaining €25,000 must be contributed by you, on top of the additional costs such as transfer tax and notary fees.
This makes it important to know in advance how much of your own money you have available. Without a sufficient buffer, you risk making a bid that you cannot financially fulfill.
What is the difference between purchase price and appraised value when overbidding?
The purchase price is the amount you and the seller agree on. The appraised value is the independent valuation by a certified appraiser. When overbidding, the purchase price is almost always higher than the appraised value, and that difference determines how much of your own money you need.
Appraisers determine the value based on comparable properties recently sold in the area, the condition of the property, and location factors. They do not look at the bidding competition in the market. As a result, the appraised value in a heated market can lag behind the price buyers are willing to pay.
The difference between the purchase price and the appraised value is also referred to as the overbidding gap. The larger this gap, the more of your own money you need to complete the purchase.
How much of your own money do you need when overbidding?
When overbidding, you need at least the difference between your bid and the appraised value in personal funds. On top of that come the buyer’s costs: transfer tax (2% for properties above the first-time buyer exemption threshold), notary fees, and appraisal costs. In practice, this means that when overbidding you should account for a personal contribution of 5% to 15% or more of the purchase price.
A concrete overview of what you typically have to pay yourself when overbidding:
- The overbidding gap: the difference between the purchase price and the appraised value
- Transfer tax: 2% of the purchase price (unless you qualify for the first-time buyer exemption)
- Notary fees: typically between €1,500 and €2,500
- Appraisal costs: on average €500 to €900
- Any structural survey: around €400 to €600
Keep in mind that these costs add up faster when overbidding than when purchasing at or below the asking price. Always calculate your maximum bid based on what you can actually finance, not solely on the basis of your maximum mortgage.
What happens if the appraisal comes in lower than your bid?
If the appraised value comes in lower than your bid, you must make up the difference yourself or let the purchase fall through. The bank will not adjust the mortgage based on the purchase price. You are then faced with a choice: contribute your own funds, ask the seller to lower the price, or invoke the financing contingency if you included it in the purchase agreement.
A lower-than-expected appraisal is a situation you preferably assess in advance. Ask yourself: if the appraiser values the property €20,000 below my bid, do I have enough personal funds to cover this? If the answer is no, it is wise to either consider a lower bid or include the financing contingency in the contract.
Without a financing contingency, you are legally obligated to proceed with the purchase, even if the financing does not come through. If that fails, you risk a penalty of typically 10% of the purchase price.
When is a financing contingency advisable when overbidding?
A financing contingency is advisable when you are not certain whether the appraised value will cover your bid, or when you do not have sufficient personal funds to absorb a disappointing appraisal. The contingency gives you the right to withdraw from the purchase if the mortgage does not come through, without owing the 10% penalty.
In a competitive market, many buyers choose to bid without a financing contingency in order to be more attractive to the seller. This increases the chance of a bid being accepted, but it also increases the financial risk. This is a trade-off you must make consciously.
A financing contingency is in any case advisable if:
- You have little or no buffer above your maximum mortgage
- Your income situation has recently changed (new job, self-employed)
- You are bidding on a property that is difficult to appraise or is in a special condition
- You do not yet have a mortgage offer and your eligibility for financing is uncertain
Do you have a strong financial position and sufficient personal funds? Then you can consider bidding without a contingency, but always do this in consultation with your mortgage advisor.
How do you prepare your financing for a competitive housing market?
In a competitive housing market, you prepare your financing by having a mortgage offer or maximum mortgage calculation made in advance, mapping out your personal assets, and determining a realistic maximum bid including the potential overbidding gap. Those who are well prepared can act faster and with greater certainty.
Concrete steps to prepare your financing:
- Have your maximum mortgage calculated by an independent mortgage advisor, preferably before you start viewing properties.
- Map out your personal funds: savings, gifts, equity from a previous property.
- Determine your maximum bid based on your mortgage plus personal funds, minus the additional costs.
- Account for an appraisal gap of 5% to 15% in popular neighborhoods and cities.
- Consult with your advisor about whether or not to include a financing contingency and what the risks are in both scenarios.
Those who want to act quickly at a viewing would do well to already have a pre-approved mortgage statement or mortgage calculation on hand. That provides certainty for yourself and confidence for the seller.
How we help with overbidding and financing
Overbidding requires a sharp strategy and a clear picture of what you can financially bear. At Urban Homies, we guide you from the first conversation to the notary. We analyze the file of the property you have in mind, help you determine a realistic and well-founded bid, and handle all communication with the selling agent, appraiser, and notary. This way, you know exactly where you stand before you place a bid.
Our buyer’s guidance is available for both Dutch and international buyers in Amsterdam and the surrounding area. We work together with mortgage advisors and appraisers, so that you are also well prepared on the financial side. Would you like to know what we can do for your situation? Contact us and we will look together at the best approach.
