Amid the many conversations about real estate, it is not uncommon to hear the words, “everything is selling above the asking price.” If we hold onto this belief about the real estate market, then it would seem unlikely that there would be any “bargains” when buying a home in 2023. Add in the widespread media headline that there is “low inventory” and you may have mounting support as to why now might not be a good time to buy a home. After all, who wants to compete with other buyers for the same house only to see the winning offer be well above what you can afford.
If you are a potential home buyer and have been sitting on the sidelines, I encourage you to re-evaluate the validity of this mindset. It’s time to get “ultra-local“. And here’s why.
There is Opportunity in the Real Estate Market
When you begin your house hunting journey, you want to get ultra-local and find out how homes are trading in the towns that you are considering. You need to take a “temperature reading” of the local real estate market and determine how “hot” the market truly is.
To give you a sense as to how “hot” a local market can be, I analyzed the real estate activity in 14 towns in Northern New Jersey comprising The Minken Housing Index. I reviewed the sales prices of nearly 4,000 homes that traded in 2022. Specifically, I focused on how many homes sold above the list price, equal to the list price, and below the list price. In other words, I went beyond the myth that “everything is selling above the asking price“. The results might surprise you.
As shown in the chart below, 64% of all homes sold across the 14 towns in Northern New Jersey in The Minken Housing Index sold above the List Price. Slightly less than one-quarter (21%) of the homes sold at a price equal to the List Price. And there were 15% that sold below the List Price.
The data is eye-opening, right? Actually, this is just a “broad brush”, as I like to say, of the local real estate market. We need to get even more “granular” in looking at the housing data.
How “Hot” is the Town You’re Considering?
If this is the “broad brush” trend, let’s examine the data more closely and take a temperature reading on a town-by-town basis. Let’s see how the percentage of homes that sold above the List Price in the individual towns compares to the 64% figure across all towns in The Minken Housing Index.
As you can see from the chart below, there are 4 towns that have an exceptionally high percentage of homes that sold above the List Price. Montclair has the highest percentage at 81.9%, followed by Maplewood at 78,5%, South Orange at 75.3% and West Orange at 73.4%.
If these 4 towns are the hottest markets in The Minken Housing Index during 2022, which towns had the lowest percentage of homes that sold above the List Price? There are 2 towns that had less than 50% of their sold homes trade above the List Price: Mountainside at 43.7% and Livingston at 49.6%.
Knowing the “temperature reading” of each town you are considering will give you insight as to where potential opportunity may be.
What You May Not Know about Winning Offers
If you are house hunting, there are a few observations about winning offers that you might not be aware of.
1. You don’t need multiple offers to generate a winning offer. A property that has sold with an offer above the List Price does not automatically signify that there were multiple offers. While this is frequently reflective of multiple bid scenarios, there are many home buyers who are guided by their realtor to come in with an offer early. You may be wondering, “What does this mean?“
You can find opportunity in the real estate market if you move fast and come in with a strong offer in advance of the traditional weekend Open House. It is possible to shut down the Open House and other potential offers on the house if you come in early with an irresistible offer. So when you see that a house sold above the List Price, it might just mean that there was only one home buyer (rather than multiple competing buyers) who submitted a winning offer before anyone else could blink.
2. The winning offer isn’t always the highest offer. While it may seem reasonable to assume that a home that sells above the List Price reflects the highest offer the seller received, this is not automatically the case. Every seller is different and may have specific things they are looking for in an offer, much like a buyer who is looking for specific features in a home they choose to buy.
The seller may go with a lower priced offer because the terms of the offer may be particularly appealing. Such favorable seller terms might be the closing date, amount of the down payment if getting a mortgage, limited (or waived) home inspection, etc. And sometimes another factor, often not mentioned, is the reputation and expertise of the realtor representing the buyer.
One of the biggest concerns of any seller is whether or not the home buyer will actually get to the closing table. When my home buyers are ready to make an offer on a home, I always have a conversation with the listing agent about the level of interest from other potential buyers, as well as what is important to the seller in ensuring a smooth transaction.
3. An ALL CASH offer has strong seller appeal. There are distinct advantages of an All Cash offer for sellers: a) no possibility that the home buyer might not qualify for a mortgage (yes, this happens); b) no concern about whether or not the home appraises for the purchase price since there is no mortgage; and c) the buyer can move quickly and get to the closing table much faster than if waiting for a “clear to close” from the mortgage company.
A buyer who is offering All Cash, therefore, does have some negotiation leverage. As a result, it is helpful to know whether a home sold for All Cash, since it might have been a lower offer compared to other offers the seller received. Keep in mind that any offer that is presented as All Cash during the offer process will need to provide proof of funds.
How Common are All Cash Offers?
Are you curious about what your odds are that you may be competing against an All Cash offer? Read on.
In analyzing the homes that sold in 2022 across the Northern New Jersey towns comprising The Minken Housing Index, I looked at the frequency of All Cash transactions. Among the nearly 4,000 homes that sold, 20.5% were All Cash.
Below is a chart detailing the percentage of homes that sold with All Cash in each of the 14 Northern New Jersey towns. The town with the highest percentage of All Cash transactions is Chatham Township at 28.9%. And the town that saw the lowest percentage of All Cash transactions was New Providence at 11.2%.
Buyers who are purchasing homes with All Cash may include builders, in addition to those who plan to live in the home, either in “as-is” condition or renovate the home. Thus, knowing whether any offers are potentially All Cash in a multiple bid process, will be useful in formulating an offer strategy on a home that is of interest to you. When I am guiding my clients about the offer process, I always speak to the listing agent to find out whether any competing offers might be All Cash.
Getting “Ultra-Local” is Key When House Hunting
If you’ve been sitting on the sidelines, house hunting this Spring requires a positive mindset, an adventurous attitude, and a willingness to be flexible. As illustrated above, some homes may sell above the List Price due to high buyer demand and low inventory. But remember it is also true that many homes sell below the List Price. You need to get ultra-local and “take the temperature” of each town you are considering.
To get ultra-local, you will need the expertise of your realtor. When getting beyond the real estate myths, you might just discover there is indeed opportunity in the current housing market.
My goal is to help my clients find the “nuance” in the local real estate market that works for them no matter how competitive the market is. That is why crafting a winning offer is essential when you find the home you want at a price that makes sense for you. In fact, your dream house might just be a “bargain” after all!
Now, isn’t that a great reason to get off the sidelines?
Did you miss my previous article? Simply click on the hyperlink: The 2023 Housing Market: What You Need to Know & How High is a Winning Offer?
Got questions? Reach out to me at 908-239-9261 or via email: [email protected]. I’ve got you covered from coast to coast, as needed, together with my CØMPASS colleagues in over 300 offices around the country. My mission is to help everyone find their place in the world.
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The 2023 Housing Market: Unraveling the Myth That “Every Home Sells Above the List Price”