If you’ve been paying attention to the housing market recently, or even the general news, you probably are aware that we are currently in one of the strongest seller’s markets in recent history. The real estate market is “heating up” as everyone likes to say.
As an agent, we have rarely seen conditions this competitive. For buyers, it presents a significant challenge to find housing. But for sellers, it means that many homes are selling for over the asking price.
Here’s a look at what factors contribute to these conditions, and what it actually means if a house is sold over asking.
First, What’s a Seller’s Market?
A seller’s market occurs when there are more active buyers in the market than there are homes available to purchase. Canada has been suffering from a housing inventory shortage for a while now. But things seemed to boil over at the start of the COVID-19 pandemic.
Two significant events occurred that contributed to the increase in buyers wanting to enter the market:
- As more people were forced to stay home, they began reassessing their living situations. The work from home movement also made it more necessary for people to have dedicated office working spaces since working from the dining room table or bedroom could be uncomfortable and disruptive.
- The Bank of Canada lowered the interest rates in an effort to protect the economy and help Canadians overcome the difficult period brought on by the pandemic. The cost of borrowing went way down and many Canadians saw this as the perfect opportunity to get into the real estate market with a lower interest rate than was ever possible before.
You can read more about buyer’s vs. seller’s markets on our blog here.
Why Does Low Inventory Mean Higher Prices?
When housing inventory is low, the ball is essentially in the seller’s court. The perceived value of the home rises because there simply are not enough homes available. People become willing to pay more because there are fewer houses on the market to choose from.
Although some experts predict that raising interest rates will help cool the market and bring prices down, prices won’t actually stabilize until the inventory starts to go up again.
What Does Sold Over Asking Mean?
When a home sells over asking, it means that the total purchase price offered by the buyer is higher than the house was listed for. For example, let’s say your house is listed for sale at a price of $950,000. If it sells for $1 million. It has been “sold over asking.”
What is a Multiple Offer Situation?
Before we get into the details of why houses sell over asking, it’s important to understand what a multiple offer situation is. Multiple offers occur when there is more than one buyer submitting offers on a home.
Each buyer crafts an offer that they hope would be most appealing to the seller, in an effort to get their offer accepted. In today’s market, some of the factors that could make one offer stand out over another include:
- Purchase price
- Closing date
When you have a multiple offer situation, homes are likely to sell over asking.
Learn more about making an offer on a home on our blog right here.
Why Do Homes Sell Over Asking?
In a competitive market, eager buyers will do almost anything to make sure their offers are accepted. In many cases, this means offering more money. Buyers might even offer more money and better conditions and closing options to sweeten the deal even more.
Over Asking or Over Paying?
In some cases, listing agents will also strategically price a home lower than its actual value with the intention of taking on multiple offers and selling for over the asking price. The reason for this is that a lower price might drum up more excitement early on and entice more buyers to submit competitive offers that are over the asking price.
This is an instance where although you might be offering over the asking price, you technically are not overpaying for the home.
What is a Bidding War?
Bidding wars are also a frequent occurrence in today’s market. This is when a listing agent encourages buyer’s agents to outbid each other incrementally. It’s similar to an auction, however, in these cases, it’s important that the listing agent communicates the current offers that are on the table.
If the buying parties are bidding without knowledge of the current offers on the table, that’s known as “blind bidding.” Blind bidding is generally frowned upon, and the government is even taking initiative to put an end to this practice. You can read more about this on our blog about the Liberal Party’s housing platform here.
Many homes for sale in Hamilton are selling over asking these days. You can learn more about Hamilton homes for sale here.
What is A Bully Offer?
Another instance where a home can sell over the asking price is in a bully offer situation. Bully offers, or preemptive offers are when a buyer takes action to make an offer on a home before the seller is officially accepting offers.
The strategy here is to get to the seller before other buyers get the chance and to get finalize the purchase without any competition.
In most cases, bully offers need to be extremely compelling for a seller to accept. This usually means offering over the asking price. Bully offers are often not beneficial for buyers from a financial perspective, but there are some instances where they are appropriate. For example, if you know the property will go into a bidding war, if it is your dream home, or if you care more about securing a property more quickly than you do about price.
Are there Benefits to Offering Over Asking?
Having the flexibility to offer over asking during the real estate purchase process can be beneficial. It means you can be competitive in a difficult market and that you have the ability to go above and beyond what is expected. Sellers are likely to pay more attention to your offer because it is more compelling and you are more likely to secure the home and have your offer accepted.
However, it probably won’t surprise you to know that offering over the asking price is not always the best idea.
What is the Downside to Over Asking?
One of the most important parts to remember when making offers on a home is to know precisely when to walk away. Some of the challenges of the bidding wars we have seen recently are that homes can sell for far more than they are actually worth, which is fine for sellers but bad for buyers.
If you are expecting to make an offer over asking on a home, be prepared for a counteroffer and be prepared to walk away if that number gets too high.
How to Navigate Today’s Competitive Market
In today’s market, almost every property is going into a multiple offer situation with most homes selling over asking. However, this doesn’t spell disaster for all buyers. The best way to navigate this type of market and ensure you aren’t overpaying is by working with an experienced and trustworthy Hamilton real estate agent.
They can advise you on market trends and statistics to help you make an informed decision that you can feel confident about.