As the housing market roared back to life in the United States this past spring, with demand far outpacing the available supply of homes, the new normal has come to include open houses with lines out the door, bidding wars, and homes selling for well over asking price. According to data from Zillow.com, 37 percent of homes now sell for over the asking price — up from 13 percent in 2018. The typical buyer pays about $2,200 over the asking price, or 0.6 percent, according to Realtor.com, based on a median list price nationwide of $367,000.
But nowhere else in America do homes sell for more over asking price than in Berkeley, California where roughly 80 percent of homes sell above the listed price, according to Zillow. In neighboring Oakland, it’s just over 70 percent of homes. Berkeley also has the highest overbid situation in the country, according to Realtor.com, with listings selling for an average of 19 percent over asking. In Oakland, the typical house goes for 11.2 percent above asking. Many, like the one Ms. Rohrer put an offer on go for much, much more — sometimes $1 million or more.
Daniel Stea, of Stea Realty Group, which has offices in Oakland and Berkeley, recently listed a home in Rockridge, a neighborhood on the border of Oakland and Berkeley known for its charming Craftsman homes and quick BART commute into San Francisco. The house, a 2,400-square-foot, four-bedroom brown-shingle Craftsman, has a large, renovated kitchen and a big backyard with a detached office studio. Mr. Stea listed it for $1.795 million. It sold in August for $3.075 million.
Homes often sell for so much more than their listed price in the Bay Area because brokers intentionally underprice listings to drum up as many offers as possible. Mr. Stea said that while he was surprised the Rockridge home went for as much as it did, he knew it would go for well above the asking price. “I’m a true believer in that the market will always tell the truth,” he said.
The strategy is to create something of a blind auction where buyers try to puzzle out a number that the sellers’ will actually accept and a number that’s higher than all the other offers. It’s a local quirk that everyone seems to acknowledge is just the way that things are done here.
Buyers tend to loathe the underpricing — describing it as everything from “a sick game” to “bizarre.” But brokers say it works well for sellers. “Sellers want to keep the bidding war blind,” said Mr. Stea, who had the Rockridge house that sold for more than $1 million over asking. “But it disfavors buyers because they’re shooting in the dark.”
D.J. Grubb, president of The Grubb Company, a local brokerage, also attributed the extreme discrepancy between list prices and sale prices to a fast-moving market where home values have climbed quickly, making it tricky to accurately figure out the value of homes.
Agents in the area use a classic “merchandising strategy,” but take it to an extreme, says Mr. Grubb. Instead of using the retail trick of pricing a $1 million product at $999,000, agents in the area typically advise sellers to price a $1 million home to capture buyers shopping in the $750,000 price range, which means a list price of $749,000. That way, multiple offers will come in with the winning bid typically around $1 million. If enough offers come in, one might come in at $1.2 million — maybe from someone willing to pay a premium to put an end to their exhausting housing search, or someone who assumes home values will soon rise to meet what they’ve paid.
Sneha Madiath has been looking for the past six months in Oakland and Berkeley with a budget of $1.5 million and offering as much as 30 percent over asking. One house had a listing price of $900,000 and sold for $2.3 million. “You don’t know whether you should bid 20 percent over the asking price? Fifty percent over? Double it?” she said. “I feel like I’m in a John Malkovich movie.”