Homes Sold Above List Price Fell to Three-Year Low in 2019

• The share of U.S. homes that sold for more than their list price in 2019 fell to 19.9%, the lowest annually since 2016. 
• Even with a significant cooldown from previous years, the California Bay Area remains the most competitive housing market in the country. 
• Homes that sold above list last year typically brought in $5,100 more than the asking price, down from $5,500 the year before.

Roughly one-in-five (19.9%) U.S. homes sold for more than their list price in 2019, the lowest share in years — a reflection of cooling market dynamics and subsequent shifts in pricing and offer strategies in response. But as those market dynamics begin changing direction again, so too will the balance of power in the ongoing price/offer game between buyers and sellers.

The share of homes sold for more than their list price last year was the lowest since 2016, and down from 21.5% in 2018, according to an analysis of transactions in which we could match a listing's initial list price with its final sale price. The year-over-year decline breaks a streak of four consecutive years in which a greater share of homes sold above list than the year before. The dip coincides with a year in which annual home value growth fell steadily from recent highs recorded in 2017 and 2018, to levels more consistent with both annual wage growth and historic annual norms.

Despite recent year-over-year drops in home value, San Francisco (48.6% of homes sold above list) and San Jose (38.8%) top the list of metros with the greatest share of homes sold above list among the top 35 — a sign of just how competitive the Bay Area remains even after cooling significantly in 2019. Boston (34.7%), Minneapolis-St. Paul (34.3%) and Seattle (31.2%) round out the top five.

The coolest top-35 markets were Miami (8.9% of homes sold above asking), Las Vegas (12.6%) and Tampa (13.3%). The share of homes sold above list in the Las Vegas area fell from 26.8% a year ago; only San Jose's share decreased by more, from 63.6% to 38.8%. 

The median amount above asking that U.S. sellers realized was $5,100, down from $5,500 in 2018 and the lowest since at least 2011. San Jose ($41,000 above asking) and San Francisco ($37,500) lead the country in this measure as well, a product of both intense competition among buyers and the high prices of real estate there making these figures relatively in line. Still, these figures are much lower than a year ago when San Jose homes typically sold for $101,000 above asking and those in San Francisco sold for $50,000 above asking. 

The Games We Play

A home-buying/-selling transaction can be a difficult process, full of uncertainty — often especially on the most essential part of settling on the price. The transaction process itself in its simplest form has at least three stages, and no definite end. The seller lists at one price. The buyer offers another. The seller accepts or rejects the offer. If the seller rejects, the process often reverts back to steps one and two — or sometimes falls apart completely.

There are any number of personal financial factors at play in both the asking price and offer price, and a good deal of gamesmanship too: Do sellers start at a low price in an attempt to attract more buyers, more quickly? Or do they start at a high price point in an attempt to get the most for their property, risking a longer and potentially more expensive process?  From the buyers side, do they offer below the list price in hopes of saving money but with the risk of being rejected? Or do they offer top dollar upfront, hoping for a smoother deal but risking overpayment?

As a result of these personal dynamics, the final price can end up substantially above or below the initial asking price. But lurking in the background are underlying local market dynamics, which often exert more influence over final price/offer strategies than any personal calculation. And for the first time in years, 2019 represented a notable shift from prevailing trends, with the first half of the year featuring a short-lived bump in inventory, along with a year-long slowdown in home value growth that threw some established buyer/seller dynamics out of whack. 

A Down & Up Year

In 2018, almost 900,000 U.S. homes sold above list, the highest number recorded by Zillow.  Throughout the 2018 spring home shopping season, more than one-in-five homes (22%) sold above list. But that share began falling as the year wore on and the calendar turned to 2019, at roughly the same time as a stock market swoon, spike in mortgage interest rates and a prolonged government shutdown combined to effectively hit pause on what had been a roaring housing market. By January 2019, the share of homes sold above list had bottomed out at 17.7%. In this environment, buyers began to claw back a little more pricing power for the first time in years.

Through the 2019 spring home shopping season, it appears many sellers were seemingly caught off guard by the changing conditions, and ended up accepting offers at or below list prices that may have been expected during the height of the market just a few months prior. Relieved of some pressure, buyers were bidding more conservatively. In April 2019, the share of homes sold above the original list price was lower than April 2018 in 37 of the largest 50 metropolitan areas.

But as 2019 played out, the cloudy outlook for sellers began to clear as the late 2018-early 2019 inventory buildups experienced in several cities were whittled back down to record lows. The stock market bounced back, mortgage interest rates fell back below 4% and the economy kept chugging along — bringing out more buyers to chase a still-limited pool of available homes. So even though there were 26,000 fewer sales in 2019 compared to 2018 in which the seller received more than they were asking, the market ended up coming a long way from its January trough.

2020 Vision

This improving outlook — at least for sellers hoping to realize larger gains — looks set to continue into the early part of 2020, if not beyond. Over the last quarter of 2019, the share of sales above list grew compared to prior months in roughly two-thirds of large markets analyzed, with more expected to follow if recent listing trends manifest in actual sales. Typically, the longer a home is on the market, the lower the likelihood of selling above the list price. But currently, homes are typically on the market 3 days fewer than last year. And at a time of the year when the market usually slows down in the face of cold weather and holiday relaxation, there were almost 20,000 more sales overall in December compared to November.

For now, it all adds up to an environment that should be somewhat more favorable for sellers next year — at least until they have to turn around and become buyers themselves, shifting their calculus yet again in housing's ongoing game of “let's make a deal.”

 

**Note: All monthly figures are seasonally adjusted for comparability

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