How long has it been since you heard the words “sold at a premium over list price?” For the past six years, sales prices ended up somewhere south of list prices by at least five percent. Now, in the markets where the recovery is hottest, sellers are increasingly experiencing multiple bid scenarios and buyers are pre-empting the competition with offers over list price that stir up memories of the boom years.
Last month 13 percent of all Realtors participating in the National Association of Realtors’ Realtors’ Confidence Index reported they had at least one sale above the asking price in the previous month. The percentage rose slightly from December, the first month that NAR asked its members about sales at a premium above asking price. Realtors reported some 12 percent reported sales with prices above list price.
According to Pro-Teck Valuation Service’s Home Value Forecast, median sales prices have overtaken list prices in at least one market, San Francisco, and are close to doing so in Sacramento and Seattle.
Reports from Realtors across the country confirm that sales at a premium over asking price are still very unusual and limited to hottest markets.
“This is pretty normal in the San Francisco Bay Area. The shortage of inventory and the fact that there are so many potential buyers leads to multiple offers. I wrote one last week where there were 14 offers on a home. The seller would not consider any offers until the home had been on the market for 5 days. We came in third on that one, where we wrote just $20,000 above list price,” reports a Bay area local broker.
Offers over list price can backfire, according to Elizabeth Weintraub of Sacramento. “An overpriced offer is especially a huge problem on a Sacramento short sale. Let me illustrate for you. Say, a home is listed at $200,000, and the comparable sales over the past 3 months justify a price of $195,000. With the way the seller’s market is moving in Sacramento, $200,000 is a reasonable price 60 to 90 days later when the approval is likely to be received. Along comes Mary Home Buyer who offers $220,000. If the seller accepts that offer, it’s a long shot that it will appraise by Mary’s lender.
“So, down the road, we get the approval letter from the bank at $220,000. Mary’s lender’s appraiser comes in at $200,000. We then go back to the bank, and maybe there are two lenders so now we have to ask 2 banks to adjust their approval letter. The primary lender refuses. Nope, that bank wants $220,000. The bank might feel we can put it back on the market and find a cash buyer for $220,000, some cash buyer who won’t rely on an appraisal. The deal blows up.,” she said.
Another measure of the changing market environment is foot traffic, which is now recorded and reported by Sentrilock, the lock box company. The diffusion index for foot traffic in September traffic fell sharply in hitting 46.0 from 70.3 in August recovered to 66.9 by January, despite the weather and time of year.
NAR reported this past week that sales this spring are likely to be even stronger than last, when they were typically brisk. This month’s reading suggests fundamentals are in place to support a good season as record low mortgage rates and steadily improving job creation continue to boost buyer confidence. Though inventories are constrained in portions of the U.S., rising prices will help to unlock inventory held off market by underwater owners and equity-strapped fence sitters.