According to the latest data from the California Association of Realtors, sales of homes above their asking price reached a record high of 70.7% in May 2021.
This metric has historically trended between 20% – 40% in past years, so this represents a major regime change and there are tons of anecdotal stories of bidding wars to go along with this transformational shift.
In the Bay Area, the results are even more extreme relative to the rest of California; Alameda leads the state with 90% of homes selling above asking price; San Mateo is the only Bay Area county below 75%.
Berkeley is a standout city in Alameda county, with homes selling for 22% above asking price on average, and going pending in around 12 days.
For instance, 1625 Derby Street was one of the top viewed homes in Berkeley on ZeroDown this week. It was listed on June 18 for $1.495 million and went pending four days later. A potential buyer likely had to beat out ten competing offers and waive all contingencies. Although buyers might be tempted to do a full court press to win a home like this, it is unlikely those Warriors season tickets to the homeowner with a basketball hoop in the front yard is going to seal the deal. Other than matching the highest price and waiving contingencies, the next best thing to do is usually to highlight how important this home is for your family and that you intend to use it as your primary residence, as many sellers view that as an important consideration in choosing between potential buyers.
1. Thoroughly research the neighborhood so you can be confident and prepared for your bid; use ZeroDown’s virtual drive feature, DriveDown, to get a unique feel for the surroundings.
2. Go beyond a mere mortgage pre-approval; arm yourself with a cash offer partner, such as offered by companies like Flyhomes or have a fully underwritten mortgage approval.
3. Be prepared to overlook minor issues such as cosmetic damage to walls, floors, and windows; if the home has structural damage, consider just passing on it.
4. Be flexible on the closing date; offer an extended rent-back to the seller to help with their move.
5. Be upfront with yourself about how much you might be overpaying and how it impacts your long-term financial goals; for example, South Berkeley has experienced an 11.6% annual growth rate in median home prices over the past 5 years, so stretching by 10% vs. the appraised value might only equate to less than 1 year of lost appreciation; i.e., if you plan to live in the home for 5 years or more, it is very unlikely you would be selling at a loss at that time. Also, with mortgage rates still around record low levels there are benefits to locking in a low mortgage rate now that might not be available under a higher interest rate environment; in last week’s meeting of the Federal Reserve, forecasters moved forward their prediction of higher interest rates, and if this trend continues it could lead to higher mortgage rates sooner than expected. The benefits of waiting until home competition dies down could be offset by a higher mortgage payment when you do decide to buy.
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