NW Florida Homes: Why pay more for a home than the asking price?

“Why pay more for a home than the asking price?” Well, on certain properties, if you don’t bid higher than asking price, someone else will. Not on every property, mind you- this is still a Buyer’s market in most areas- but here are some things to consider before you decide to place a bid on a property to determine if that property MAY sell for higher than asking price.

1.) How long has the property been listed at the current listing price? Your Realtor can answer this question for you by researching the price history in the local MLS. If it is an older listing and has been in the current price range for a while, then it will be less likely to have multiple offers and probably will not sell for over the asking price.

2.) Is it a Foreclosure, Short Sale, or Owner Sale?

a.) Foreclosure- Sometimes foreclosed properties are deliberately listed at ultra-low prices to attract buyers as quickly as possible. This can sometimes cause a bidding war, where the listing agent will ask all potential buyers to submit their ‘highest and best’ offers. Depending on who is bidding and how much they desire the property, the bidding war can make the price go higher than listing price.

b.) Short Sale- If the listing agent is an experienced Short Sale agent, then they probably have the home priced close to where they think the lender (who holds the current mortgage, which is higher than asking price) will accept the offer (agreeing to sell the home for less than what the current owner owes on the mortgage). The home is often priced based on a BPO (similar to an appraisal) which takes into account the sales and listing prices of nearby properties that are close to the subject property (usually within 1/2-1 mile) and similar in age and condition. If the agent has the home priced correctly, it should sell right around the listing price. If the agent has priced it too low, the lender may ask for more than the listing price in order to agree to the sale. In this case, the Buyer can decide whether or not to accept the lender’s counter offer, and the purchase price will end up higher than the original asking price.

c.) Owner Sale- If the home is being sold as a non-distressed owner sale, then they are probably pricing it based on either local sales comps in the neighborhood (pricing at market value), based on what the seller owes on the current mortgage, or based on what they FEEL that the home is worth (often priced over current reasonable market pricing). In the current market, these types of listings do not usually close for higher than asking price, because they are usually priced at or above current market value.

3.) Is the home in a desirable area, or does it have other features that make it special? If the home is in a desirable area or popular neighborhood, or if it has features that make it ‘stand out from the crowd’ such as a beach waterfront property or luxurious amenities, then this may lead to a bidding war, potentially causing the selling price to go higher than asking price. On properties like this, I always recommend to my Buyers to bid what the home is worth to them, and that if they want to bid lower than asking price they have to be prepared to lose the home. Of course, we also run sales comparisons to make sure that they are not bidding over what the home will likely appraise for.

4.) Is the home going to appeal to many investors? If you are an investor, you have to remember that you are NOT the only investor in the area. In the Pensacola MLS region that I serve, in the past year there have been 969 agents that have sold Residential Property (there are many more active agents, but many have either had no sales in the last 12 months or are in Commercial or other specialties). I know that I email property searches to about 300 different buyers in my database each day. Of those, probably about 30 are active or potential investors, and guess what? They are all viewing the exact same properties that you are looking at, every day. If I’m sending these properties to about 30 different potential investors every day, then how many of those other 969 active Realtors in the area have investors that they are sending those listings to each day?
Now granted, not every property is going to appeal to every investor, but I know that I often show the same property to multiple buyers, and on occasion I’ve even submitted offers from multiple buyers on the same property (making sure they are aware that I am working with more than one buyer on that property and allowing them a chance to bid accordingly). Right now, the most popular properties with the majority of my active rental investors are those priced under $40,000. I always recommend to them that if they see one of these properties on my daily email alerts, then they need to view them quickly and decide quickly whether or not to place a bid, as this price range sells fast (again, depending upon the condition of the property and location). If you see a home you really want, bid what it’s worth to you and don’t be upset if you lose it by bidding too low. Not every low priced home will lead to a bidding war, so ask your Realtor for their opinion before you make your offer.

I’ve done some research on Residential sales in the last 6 months in the Pensacola MLS region. So far, I’ve found 108 properties that have closed for more than asking price since 9/1/2010 (I’m sure there are more, but there’s no quick search option to gather that information). Of course, there have been a total of 2031 Residential sales in that same time period, so the percentage of sales that closed higher than asking price is low (about 5% of the sales that I have found to date).

If you would like to see a brief overview of some of the listings mentioned above, please email me at BrokerTrish@gmail.com and I will forward the information to you (sorry I couldn’t post it here- it was just too much information for one blog). Some useful information included in this data:

-22 were short sales
-55 were foreclosed/corporate owned
-31 were non-distressed owner sales

Of ALL the Residential listings sold in the Pensacola MLS region between 9/1/2010 and 3/6/2011 in the Pensacola MLS:

-258 were short sales
-482 were foreclosed/corporate owned
-1291 were non-distressed owner sales

To view previously posted daily Foreclosure & Short Sale lists, please click here.