Report: California Home Buyers Offering More Than the Asking Price

Lately, it seems that a lot of home buyers in California are making offers for more than the original asking price. This is a common strategy in a highly competitive real estate market, and that’s exactly where we are in 2021.

We have heard many anecdotal reports from real estate agents of this trend. Now, a recent report published by the state’s Realtor association offers some data to back it up.

California Home Buyers Offering More Than Asking Price

Call it a sign of the times. A recent report from the California Association of Realtors showed that most home buyers in the state are currently offering more than the asking price.

The April 2021 report showed that nearly two-thirds of homes sold in March were sold for more than the list / asking price. This means that home buyers across California are competing fiercely with one another, often driving up the sale price with competitive bids.

Clearly, the bidding war is alive and well in 2021. Especially in the Bay Area.

Here’s How It Usually Plays out

The reason why so many homes in California are selling for more than the asking price has to do with competing offers. It usually works like this:

Let’s say a particular house is listed for $400,000. But it’s a competitive real estate market, and home buyers know this. So, in order to outfox competing buyers, they might offer more than the list price.

One buyer might put in an offer for $420,000. Another might offer $440,000, or more. This is commonly referred to as a multiple-offer scenario or bidding war. And it appears to be a frequent occurrence in 2021.

In a typical real estate market, it’s usually not necessary for California home buyers to offer more than the asking price. But we are not in a “typical” or normal situation right now. In 2021, the California real estate market is red-hot. It has been that way for some time, despite the coronavirus pandemic. Home buyers are out in full force, competing for limited inventory.

And as the data show, a lot of them are willing to offer more than the asking price to get the houses they want.

The #1 Reason for Aggressive Offers

You might wonder why so many home buyers in California are willing to make offers that are above the original list price. As usual, it has to do with supply and demand. There is very little of the former, but plenty of the latter.

All across California, we are seeing record-low levels of housing inventory. There aren’t nearly enough homes on the market to satisfy the demand from buyers. In fact, the total number of active real estate listings has declined significantly over the past year or so.

So we have a situation where a tight real estate market has gotten even more constrained.

This is the number-one reason for home buyers in California offering more than the asking price. They know that if they don’t “go big” with their offer amounts, someone else will. It’s a situation where buyers feel the need to be aggressive, in order to rise to the top of stack.

According to California Association of Realtors president David Walsh:

“While intense homebuying interest is the engine that continues to drive housing demand, a shortage of homes for sales is the rocket fuel pushing prices higher across the state. A lack of homes for sale is creating unprecedented market competition, leading to a record share of homes selling above asking price in March.”

A Good Reason to Have Your Financing Squared Away

This trend underscores the importance of having your financing squared away, before entering the real estate market. It’s also wise to have a budget on paper ahead of time. You want to enter the real estate market knowing exactly how much you’re comfortable spending.

This is especially important for those California home buyers who are using a mortgage loan (which is most). If you’re planning to use a home loan to finance your purchase, you have to know how much you can afford to pay each month.

The best-case scenario is to enter the real estate market with these numbers firmly in mind. This will prevent you from getting “caught up” in home-buying fever and making an offer that you can’t realistically afford.

Making an offer above the asking price is a common trend in the California real estate market in 2021. It’s largely driven by a stark imbalance between housing supply and demand. Home buyers are making aggressive offers in order to succeed in a highly competitive market.

And this trend probably won’t go away anytime soon. The real estate market won’t cool down until we see a significant increase in inventory, and that could take months or even years.