By Steven Thomas // February 7, 2022
WHEN A RECORD LOW NUMBER OF AVAILABLE HOMES IS MATCHED WITH FIERCE PENT-UP DEMAND, IT RESULTS IN AN AUCTION WHERE HOMES SELL IMMEDIATELY AND FOR MORE THAN THEIR ASKING PRICES.
SELLING ABOVE THE ASKING PRICE
IT IS COMMON FOR HOMES THAT ARE JUST PLACED ONTO THE MARKET TO RECEIVE DOZENS OF OFFERS TO PURCHASE, PUSHING UP HOME VALUES AT A RAPID PACE.
For over a century, the predominant way to sell a home in Australia has been by auction. The appeal of an auction is that homeowners believe they can get a higher price by forcing buyers to compete against each other in a bidding war. An auctioneer is hired to conduct the bidding process. The more that participate, the higher the price. It has been argued that the auction system has resulted in sky-rocketing housing prices.
In the United States for the most part, homes are not sold by auction. Yet, talk to any buyer over the past couple of years and they would argue that the real estate purchasing process feels more like an auction that the conventional way of buying a home. There once was a time when homes generated only one or two offers and the overall temperature of the market was much different than today. With today’s extremely limited inventory and throngs of buyers interested in every home that comes to market, a bidding war develops. The asking price can be seen as the “reserve price,” the minimum bid acceptable to a seller. Often, offers that come in at the asking price do not excite many sellers, resulting in delays in response times until “better” offers come along.
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