There is considerable truth to what your realtor said about the Jersey City NJ housing market these days. It is a "hot" area with lots of expensive condos being bought up by people working on Wall Street in NYC (very easy commute by train, etc) and in many cases, the offers to purchase can exceed the asking price significantly. Be that as is may, the issue with accepting a higher offer but smaller downpayment is that when the buyer's lender appraises the property, the valuation might come in lower and the buyer may have to come up with the difference, or be required to accept a higher interest rate, or be refused the loan altogether if the lender estimates that the buyer is likely to default on the loan because his credit-worthiness is inadequate to support the
monthly payments. So, the sale might fall through.
Suppose that the property is offered for sale at $500K, and consider
two bids, one for $480K with 30% downpayment ($144K) and another for $500K with 20% downpayment ($100K). If the property appraises for $450K, say,
and the lender is not willing to lend more than 80% of that ($360K), then Buyer #1 is OK; it is only necessary to borrow
$480K - $144K = $336K, while
Buyer #2 needs to come up with another $40K of downpayment to be able to get the loan, or might be asked to pay a higher interest rate since the
lender will be lending more than 80% of the appraised value, etc. Of course, Buyer #2's lender might be using a different
appraiser whose valuation might be higher etc, but appraisals usually
are within the same ballpark. Furthermore, good seller's agents can make good estimates of what the appraisal
is likely to be, and if the asking price is larger than the agent's estimate of appraised value, then it might be to the advantage of the selling
agent to recommend accepting the lower offer with higher downpayment over the
higher offer with smaller downpayment. The sale is more likely to go through, and an almost sure 6% of $480K (3% if there is a buyer's
agent involved) in hand in 30 days time is worth more than a good chance of nothing at the end of 15 days when the mortgage is declined, during which the house has been off the market on the grounds that the sale is pending.
If you really like a house, you need to decide what you are willing to
pay for it and tailor your offer accordingly, keeping in mind what your buyer's agent is recommending as the offer amount (the higher the price, the more the agent's commission), how much money you can afford to put down as a downpayment (don't forget
closing costs, including points that might be need to be paid), and
what your pre-approval letter says about how much mortgage you can afford. If you are Buyer #1, have a pre-approval letter for $360K,
and have enough savings for a downpayment of up to $150K, and if you (or your spouse!) really, really, like the place and cannot imagine living in any other place, then you could offer $500K with 30% down (and blow the other offer out of the water). You could even offer more than $500K
if you want. But, this is a personal decision.
What your realtor said
is perfectly true in the sense that for Y > Z, an offer at $X with $Y down is better than an offer at $X with $Z down. It is to a certain extent true that for W > X, a seller would find an offer at $X with
$Y down to be more attractive that an offer at $W with $Z$ down, but
that depends on what the appraisal is likely to be, and the seller's