It’s a Bidding War!
It is not uncommon for homes marketed FOR-SALE to procure 5, 10, 15, or even more offers to purchase within a few days of coming on the market.
Charity auctions can be very entertaining. There is always something that nearly everyone wants. An Italian villa, a gourmet chef for a week, a ski chateau in the Rocky Mountains, all garner plenty of attention. After scouring all the details, attendees strategize and settle on their maximum bids. The auctioneer starts the bidding low to capture everyone’s attention. Paddles are eagerly raised one after the other. There is so much interest that the auction transforms into a bidding war. The value soars upward until it finally slows, and a winning bidder is revealed.
That in essence is what is occurring daily in the real estate trenches. Homes that hit the market are instantly greeted with plenty of buyer interest and a stream of showings. In no time multiple offers follow. Buyers are pitted against each other and a bidding war develops. Countless buyers offer the full asking price, only to receive a counter offer that asks them to come back with their highest and best offer to purchase.
Yes, in many cases that means that a buyer must be willing to pay higher than the asking price to be the winning bidder. Many homes ultimately sell for more than their asking prices. There are a lot of reasons the market is exceptionally hot today. The leading factor is record low mortgage rates. The monthly and annual payment savings are jaw dropping and has been the catalyst to a tsunami of buyer interest. Another factor is the lack of available homes to purchase. There are fewer homes coming on the market right now because it is still the Winter Market. The vast majority of homeowners opt to “wait until the spring” to market their homes. Spring does not begin until Saturday, March 20th. Until then, there should not be the expectation of a bunch of new homes hitting the market. With demand so hot, many homes are not available to purchase because they are in escrow. With more escrow activity, the supply diminishes. Also, fewer homes came on the market in January compared to the 5-year average, 9% less, or 266 missing FOR-SALE signs. That may not be a ton of missing signs, but it is adding to the problem.
In breaking down the inventory by price range, the lack of available homes to purchase is fairly uniform across the board. There are 1,512 fewer homes on the market compared to last year. In fact, the current inventory is at 2,493 homes, the lowest level since tracking began in 2004. There were 4,005 homes last year. In 2013, the hottest market prior to this year, there were 3,249 homes on the market, 783 more than today. To say that there are not enough available homes to satisfy current demand is an understatement. It is unprecedented.
In looking at demand levels by price range in Orange County, there is not much of a change below $750,000. Yet, it is important to note that despite demand being nearly the same in the lower ranges, it is matched up against far fewer available homes. Demand above $750,000 is considerably higher. For example, between $750,000 and $1 million, there are 28% more escrows compared to last year, an extra 146 pending sales. Match that up with 261 fewer available homes to purchase and the range is nuclear hot.
Luxury homes continue to be extraordinarily hot as well. Luxury demand is up 63% compared to last year, an extra 148 pending sales. With the inventory for homes above $1.5 million down by 26%, 324 fewer homes, and heightened demand, luxury is off to an incredible start this year.
A Tip to Sellers: The best strategy to obtain the top dollar for a home is to carefully price a home according to its Fair Market Value. This current market may be incredibly hot, especially below $1.25 million, that stretching the asking price and even overpricing a home may still result in eventually achieving the ultimate goal in selling; HOWEVER, it will be at the expense of leaving money on the table. Stretching the asking price and overpricing results in fewer offers to purchase and not being able to properly tap into the auction-like atmosphere in selling a home today. When a home is properly priced according to the most recent comparable and pending sales, taking into consideration the location, conditions, upgrades, and amenities, it will procure the most interest and the highest number of multiple offers possible. Pitting all of these offers against each other will instigate a bidding war where one buyer outbids the rest, often for higher than the asking price, and, in some cases, much higher.
Like a charity auction, there is a lot of buyer interest in today’s housing market. Paddles are eagerly raised one after the other in the form of offers to purchase. There is so much interest that the pseudo-auction atmosphere transforms into a bidding war. The value soars upward until a winning bidder is revealed. Wise sellers will take advantage of this market.
Orange County Housing Summary
• The active listing inventory decreased by 134 homes in the past two-weeks, down 5%, and now totals 2,493, its lowest level since tracking began in 2004. In January, there were 9% fewer homes that came on the market compared to the prior 5-year average, 266 less. Last year, there were 4,005 homes on the market, 1,512 additional homes, or 61% more.
• Demand, the number of pending sales over the prior month, surged by 535 pending sales in the past two-weeks, up 26%, and now totals 2,055, its strongest start to February since 2013. The record low mortgage rate environment is fueling today’s exceptional demand. Last year, there were 2,173 pending sales, 16% fewer than today.
• The Expected Market Time, the number of days to sell all Orange County listings at the current buying pace, decreased from 38 days to 29, an extremely Hot Seller’s Market (less than 60 days) and the strongest reading since tracking began in 2004. It was at 55 days last year, much slower than today.
• For homes priced below $750,000, the market is a Hot Seller’s Market (less than 60 days) with an Expected Market Time of 22 days. This range represents 33% of the active inventory and 43% of demand.
• For homes priced between $750,000 and $1 million, the Expected Market Time is 17 days, a Hot Seller’s Market. This range represents 15% of the active inventory and 26% of demand.
• For homes priced between $1 million to $1.25 million, the Expected Market Time is 21 days, a Hot Seller’s Market.
• For homes priced between $1.25 million to $1.5 million, the Expected Market Time is 29 days, a Hot Seller’s Market.
• For luxury homes priced between $1.5 million and $2 million, the Expected Market Time decreased from 56 to 48 days. For homes priced between $2 million and $4 million, the Expected Market Time decreased from 83 to 66 days. For homes priced above $4 million, the Expected Market Time decreased from 220 to 166 days.
• The luxury end, all homes above $1.5 million, accounts for 38% of the inventory and only 14% of demand.
• Distressed homes, both short sales and foreclosures combined, made up only 0.2% of all listings and 0.3% of demand. There are only 2 foreclosures and 2 short sales available to purchase today in all of Orange County, 4 total distressed homes on the active market, down 4 from two-weeks ago. Last year there were 38 total distressed homes on the market, more than today.
• There were 3,091 closed residential resales in December, 25% more than December 2019’s 2,469 closed sales. December marked a 9% increase compared to November 2020. The sales to list price ratio was 98.7% for all of Orange County. Foreclosures accounted for just 0.2% of all closed sales, and short sales accounted for 0.3%. That means that 99.5% of all sales were good ol’ fashioned sellers with equity.