You’d think it would be a simple situation. If the buyer really wants one of the Davie homes for sale, they may decide to go over list to get it. The seller is delighted to have such a high offer. They’ll probably accept without a second thought. But, there’s more to it than that. Here’s what you need to know about over list price transactions.
When Do Offers Come in Over List Price?
Offers come in over list price when there is a lot of competition among buyers in the real estate market. When there is a lot of competition among buyers, it’s called a Sellers’ Market. That’s because there are many more homebuyers looking to buy than there are homes for sale. Therefore, buyers must compete for the homes that are on the market.
Defining Buyer and Seller Markets
One of the industry indicators to determine when there is a Sellers’ Market is the Months of Supply, also called Inventory. It indicates how many months it would take for the houses on the market at any point in time to sell.
That indicator is based on how long homes are taking to sell. Here’s an example. Let’s say that homes are selling at a rate of 10 homes per month, and there are 50 homes for sale. That indicates a 5-month supply of homes for sale.
If there are less than 6-months of supply, sellers have the advantage. If there are more than 6-months of supply, buyers have the advantage.
What Type of Market is Broward County Experiencing?
The Miami Association of REALTORS® publishes real estate market data for Broward County, which includes Davie. The latest figures are from the month of December 2018. The single-family homes in Broward County have 4.4-months of supply. Townhomes and condos have 5.7-months of supply.
Given those figures, you can see that Davie is experiencing a seller’s market. That doesn’t mean that every homeowner is going to get offers over list price, but it’s more likely. In fact, in December, homes were selling at a median percent of 95.4% of the list price. Therefore, it’s possible that some buyers did make offers over list price.
What Can Stop an Over List Price Transaction Cold?
The one thing that can stop a transaction in its tracks is when the buyer is obtaining financing and the appraisal comes out below the offer price.
For example, let’s say that the seller listed the house to sell at $300,000 but a bidding war among potential buyers drove the winning offer to $330,000.
Then, as the buyer’s financing proceeds, the bank sends out an appraiser. Let’s assume that the appraiser comes back with a value for the house of $310,000. Now, there’s a $20,000 difference between what the bank says the house is worth, and what the buyer offered. One of two things has to happen.
- The seller must accept a revised offer of $310,000.
- The buyer must increase their down payment by $20,000.
Neither the buyer nor the seller is going to be happy with this situation. The seller may think that they should be able to get the $330,000 price in a hot market, and may not want to lower the price. The buyer may not have another $20,000 to put into a down payment.
What’s the Outcome?
The buyer and seller need to come to an agreement on how to handle the $20,000. If the buyer has the money, and thinks the house will appreciate quickly enough to make it financially feasible, they may agree to increase their down payment.
The seller may be ready to move and may not want to negotiate a new deal. In that situation, the seller may agree to accept the lower price.
Working with a professional real estate agent with excellent negotiation skills comes in handy when something like this happens. It’s much more effective for an objective third party to negotiate on your behalf in an emotionally charged situation.
The moral of the story is that both the buyer and seller need to go into an over list price transaction with a realistic outlook. It might work out perfectly, or it might put a monkey wrench into the works.
If you’re thinking of buying or selling in Davie, make sure you work with an agent who is knowledgeable about the local real estate market. And, someone who can reduce your stress level by handling negotiations expertly. The members of Teri’s Real Estate Team can help. Give us a call at 954.242.8030, or send an email. Let’s get to know each other and talk about your goals and how we can help!