To say the process of buying or selling real estate in the past year has changed would be an understatement, and maybe one of the most significant changes being the meaning of a “list price.”
Before putting their house on the market, sellers and their agents will estimate the home’s value through a valuation process. The outcome of that valuation will enable the seller to determine the home’s current market value and set a listing price.
Historically, what this has meant is the seller would determine the dollar amount they want for the home, then pad that amount to leave themselves some negotiating room. This “padded” number would become the listing price. Buyers would then try to determine how much less than the listing price they could offer and still get the home. The actual sales price would almost always be below the asking price but usually about what the seller hoped to get. What rarely happened was the buyer paying over the asking price.
My how times have changed. And hopefully only temporarily.
Today we live in a unique world in real estate where the ultimate sales price looks more like the result of an eBay auction than it does a negotiation between a seller and an interested buyer. With record low inventory of homes for sale, strong buyer demand has brought us bidding wars on many if not most homes. I recently read a report just released by the National Association of Realtors (NAR) that 45% of buyers paid full price or more for their new homes. I do not know where they took that survey but based on what we’ve seen here along the Ventura County Coast, that number is low.
Whether buying or selling in this current market, you probably need to change how you perceive the listing price of a home. Where that list price used to be more of a ceiling, it should now be considered a baseline. It used to be almost unthinkable to pay more than the asking price. But, in essence, like an auction, the listing price now becomes the minimum the seller is expecting to get.
Another tricky thing to keep in mind while navigating this market is financing. A buyer and a seller can agree upon a price, but if that buyer is taking out a mortgage, the home appraisal will determine how much a bank is willing to lend. And while previous sales of “like” homes will set the market value of the home you are interested in, estimating how it will appraise is a little more complex than usual.
Someone more familiar with the housing market of the past may think offering more for a home than the listing price is foolish. However, frequent and competitive bidding wars are creating an auction-like atmosphere in many real estate transactions. This is by no means a reason to sit this market out if you are ready to buy. Interest rates are still low, and the value is still there. It is just a matter of knowing how to make a competitive but reasonable offer. We have helped many buyers over this past year, and we’d love the opportunity to talk to you about how we can help you buy your next home in this uniquely competitive market.