Intense Competition Pushes Share of Homes Selling Above List to Record High

• A greater share of homes sold above their list price in September (22.4%) than in any month since at least January 2018, another byproduct of incredibly strong buyer demand. That share has grown each month so far this year, pushing well past the typical high point as the market continues to defy seasonal norms.
• Homes priced near the typical U.S. home value appear to be the most sought after, with 28.2% of homes in that price quintile selling above list in September.  
• Compared to last year, the share of homes that sold above list in September doubled in Phoenix, San Diego, Denver, Virginia Beach and Riverside.

More than one-in-five homes sold nationwide in September went for more than the asking price, another example of a seasonal and historical aberration in a year chock full of them — and the latest evidence that sellers have the upper hand in the 2020 housing market.

It is not uncommon for certain homes to generate offers above list price. But the frequency with which homes are selling above list price this year is both historically and seasonally unusual.   Of all U.S. homes sold in September, 22.4% went for more than their asking price — roughly 50% higher than both the long-term average (14.5%) and for the month of September in both 2019 and 2018 (around 15% in each year), according to a Zillow analysis of sales and list prices. The data point to robust competition and likely bidding wars over the extremely limited supply of homes for buyers to choose from — a home selling above list on its own does not necessarily mean that home received multiple offers, but it's a very strong indicator.

Typically, July is the month in which the highest share of homes fetch more than their list price, but September 2020's figure was noticeably higher than July of this year (18.2% of homes sold above list), last year (16.1%) and 2018 (17.7%). In a typical year, the market cools in August and September — but the market accelerated into the early fall this year, defying historical seasonal patterns. If most sellers dream of a bidding war pushing their gains beyond their initial expectations, then the evidence suggests that in a year that has otherwise been filled with nightmares, many home sellers' dreams are nevertheless coming true as we approach the end of the year.

Widespread Gains

Gains in the share of homes sold above list were widespread across both geographies and market segments. Sales above list were most common for homes priced just above and below the typical September U.S. home value of $259,906. Homes priced in the second quintile of all U.S. home listings — between $192,001 and $264,000 — sold above list in 28.2% of September sales. Homes in this price range are also selling incredibly quickly — a recent Zillow analysis of time on market found similarly priced homes typically sold faster than any other price tier in September.  

Homes priced between $264,001 and $346,000 nationwide, sold above list price 25.9% of the time in September, up from 16.4% in the previous year. And 21.8% of homes in the move-up segment (priced between $346,001 and $487,000) sold above list in September, up from 13.4% a year ago.

Because progressively fewer buyers can afford homes at higher price points, it is common for the most expensive homes to generate fewer offers above list price. But even in the premium home segment, there is significant evidence of intense buyer competition. Roughly one-in-six (15.7%) of homes in the most-expensive segment (priced higher than $487,001) sold above list in September, up from 10.5% in 2019 and the highest share sold above list in this price range in any month since at least January 2018, the earliest month included in the analysis. 

The data also show extraordinary year-over-year changes in buyer behaviors in individual markets that reflect the unprecedented nature of 2020.  The share of homes sold above list is up from last month and higher than a year ago in each of the 50 largest U.S. metros, and has more than doubled year-over-year in five of the top 50: Phoenix, San Diego, Denver, Virginia Beach and Riverside. In Phoenix, 27.9% of homes sold above the initial asking price in September, up from 11.8% in the previous year.  Market conditions in these markets are clearly markedly different than they were only 12 months ago.  

Among the top 50 metros, San Francisco had the highest share of homes that sold above list price in September at 48.9%, up from 43.4% in September 2019. That almost half of buyers were able — if perhaps not entirely "willing" — to pay more than the list price in what has perennially been one of the nation's most-expensive housing markets speaks to the complicated relationship between a number of unique local factors, including: The enduring desirability of the area; the high incomes of many willing to pay the price to live there; and the very limited number of homes available to buy in the first place. It could also indicate that sellers may be underestimating the strength of the local market and pricing too conservatively — or, for some savvy sellers, it could validate the strategy of pricing low on purpose, in hopes of generating competition that will drive the ultimate price up. The Bay Area will continue to grapple with huge housing affordability challenges, but its clear that ultra-low mortgage rates are helping local buyers stomach otherwise nosebleed-level prices. 

A Sense of Urgency

Perhaps unsurprisingly, homes that sold in the shortest amount of time — indicative of more-intense competition for these properties — also were more likely to sell above list. Nationwide, of homes that sold in 10 days or less, an average of 28.5% sold above list since 2018 . The longer homes stayed on the market, the less likely they were to sell above list — although its not unheard of: Among homes that took 60 days to sell, about 10.4% received an offer above list.

Potential buyers may be feeling urgency to lock in low mortgage rates while they last, especially if they sense prices will slip further from reach in coming years. Many others may be taking advantage of new freedom to telecommute from an area where they can more easily afford a home. In either case, the housing market is taking us all back to Economics 101 and teaching lessons about supply and demand. There are simply more prospective buyers than sellers right now, and this imbalance is driving prices higher than we typically see at this time of year. Many buyers in the market right now will need to be realistic about the possibility of bidding wars, and leave themselves financial flexibility by looking at homes listed for less than their maximum price point. 

After a brief freeze in activity in the early months of the coronavirus pandemic, the housing market has been scorching hot throughout the summer — but there are signs of an expected seasonal cooldown as we approach the end of the year. Modest drops in both mortgage applications and pending sales indicate that closed sales are likely to recede somewhat in coming months. Still, with tight inventory, low interest rates, and robust demand from households re-evaluating their housing needs, a competitive market is likely here to stay into 2021 — which may mean many listings are likely to fetch their seller a surprising bonus above their initial expectations.

 

Methodology

The share above list price figures reported in this analysis are computed from a matched data set of final sale prices and first list prices.  Share above list price by tiers are computed as the three month trailing average of homes that sold above the list price within each sale price quintile.  Sale price quintiles and tiers are computed monthly.  National figures are computed as an inventory-weighted average of the state-level share of homes sold above list, which is necessary for computational considerations.

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