2010 “Overbidding”…Is it Still the Norm?

Westcoe Realtors, Riverside California…Based upon the phenomena that began in earnest in the early part of 2009, we get asked the above question all the time…Is overbidding still as prevalent today as in 2009?  And almost 2 months into 2010, the absolute answer is a resounding…YES. 

As any of our loyal readers know, overbidding refers to a closed escrow in which the ultimate closing price is equal-to-or-greater than the list price.  In essence, this is a great indicator of the strength of the current real estate market.  A high percentage of overbidding indicates that there is more demand than supply, which leads to multiple offers on properties, which in turn leads to selling prices higher than the list price because of the competition between the interested buyers.

As a reminder, for all of 2009, the percentage of homes that closed escrow in the Riverside area at a price equal-to-or-greater than the list price was 64%.  In breaking down those statistics further, the percentages on homes below $350,000 was 65%, and on homes above $350,000 was 50%.  Naturally, there were far more homes in the lower price range than in the upper, which is why the lower price percentage is far more reflective of the marketplace.

Now….for the month of February, 2010…the numbers break down as follows:  for homes below the $350,000 level, the percentage of overbid closings has risen slightly to 69%, and for the higher price range, the level is 51%, leading to an overall percentage of 67%.  The unit sales are down from the previous February (395 total closings in 2009 as compared to 328 for 2010), but the percentage of overbidding is higher.

What does all this mean?

For starters, it shows that there are still more buyers than sellers, and until that ratio comes more in balance, overbidding is here to stay.  It is our sincere hope in the real estate industry that this ratio becomes more balanced by adding more supply (and not losing the demand), but no matter how this balance is obtained, until it comes, every buyer better get comfy with the idea of competition.

Secondly, it leads to the most constantly asked question we get from our clients, which is….”what is happening with all the bank repos?”  Everyone knows that there are a huge number of properties in the Inland Empire area that have had Notice of Defaults filed (the first step in the foreclosure process), but as of the past 6 months or so, these properties are not making it through the process to eventually show up as available inventory for all our buyers to see and buy. So what gives?  Where are they?

Well, we don’t know…and neither does anyone else.  Speculation runs rampant, but the bottom line is that the bank repos have dried up like grapes into raisins, and no one knows if this will change.  Yes, there are more loan modifications happening (but not many), more short sales (a higher number than 2009, but not enough to explain the lack of inventory), and more houses sold to investors at the court house steps (again, more than in 2009, but not by a huge margin)…but added together, these still do not account for all the possible foreclosures by a long shot. 

In the end, no one really knows if these potential foreclosures will burst the dam gates and flood our market (which seems unlikely, but trust me, we could handle them all with our huge buyer demand), or whether these properties will just continue to trickle out as in the past 6 months…only time will tell.

Until then, our market will remain unbalanced, and overbidding will remain a simple fact of life for anyone who is purchasing a home.  Your ultimate purchase price will still be a very good price relative to where we were in the past (and most likely where we will be in the future), but for now, at least 67% of the time, your purchase price will not be lower than the list price.

Good luck and stay patient…the end result is worth it.