The city where you are almost guaranteed to pay a higher price? The Contra Costa County town of El Cerrito, where 92% of homes on the market sold above asking, a 22 percentage point increase from the same period in 2020. Nearly the same percentage of homes sold above asking in some other East Bay cities: El Sobrante, Castro Valley, Hercules and Livermore all saw year-over-year increases of more than 30 percentage points, according to the data.
Your best bets for paying at or near list price: Half Moon Bay and Menlo Park. Both saw 38% of homes go above asking, but even there the trend toward paying more than list was higher than in the same period last year.
What’s behind the widening chasm between what sellers are advertising and buyers are paying? Real estate experts point to a combination of factors:
• List prices in the Bay Area haven’t changed in relation to the actual increases in sales prices, said District Homes Realtor Alissa Custer, who works in El Cerrito and around the East Bay. Most agents in the region have held on to low list prices as a reliable strategy. In El Cerrito, she said, the median sales price increased by about 35%, while the median list price increased by less than 10%.
• A signature impact of the coronavirus pandemic has been the ability for more people to work from home. Cities a bit beyond the San Francisco-Oakland core have become more desirable for remote workers, offering more space for the price without concern about a longer commute.
• The overall inventory of homes for sale remains low, driving the bidding for what is available higher.
In all, about 62% of homes in the Bay Area sold for above list price in the first quarter of 2021, up from 47% over the same period in 2020. By comparison, only about a third of homes nationally sold above list price in the first quarter, Zillow said.
“It’s incredibly high, roughly twice the national rate,” said Matt Kreamer, data public relations senior manager for Zillow.
Perhaps surprisingly, Palo Alto and San Francisco were among the cities where homes were least likely to sell above asking. Both actually saw a decrease in the proportion of homes going above list price. About 39% of homes in Palo Alto went for above list price, nine percentage points fewer than last year. In San Francisco, 42% of homes sold for above asking, 16 percentage points fewer than in the early months of 2020.
Still, said Compass real estate agent Mary Macpherson, San Francisco continues to see many properties go for not just above list price, but far over. Macpherson recalled a recent property that sold for $1.5 million more than its list price.
“We’ve had a pretty captive audience in terms of buyers,” said Macpherson, who works primarily in San Francisco. During the pandemic, she said, “Shopping for a home became almost a hobby … but it also catapulted some properties higher than they should have been.”
Some city neighborhoods are seeing wider gaps between list and sale price than others. The Sunset/Parkside saw a 24% average difference between list and sales price among single-family homes, while Pacific Heights/Presidio Heights saw only a 2% average difference compared with the same period last year, according to data from real estate broker Compass.
While a significant number of people opted to move out of San Francisco to more affordable regions, another subsection of people decided to stay put because of the increasing competitiveness in other markets, such as those increasingly attractive East Bay cities a bit farther out.
“There used to be an arbitrary line that people said, ‘I’m not going past Albany or Berkeley,’” said District Homes’ Custer. “Now, with work from home, El Cerrito is getting a ton of interest and prices are just climbing faster than agents can keep up with.”
Until recently, she said, it was typical for homes to go for about 15% to 20% over list price in El Cerrito. Now the median house is going for about 40% more.
These dynamics — especially coming on a foundation of low inventory — have led to exploding bidding wars all around the region, said Patrick Carlisle, chief market analyst for Compass. “Overbidding percentages and median sales prices have been jumping around the Bay Area,” he said.
Some real estate agents say strategies some of their number employ have helped drive up the price differences.
“Pricing strategies have started to get a little more cruel, to be honest,” Macpherson said. On a Facebook forum for real estate agents recently, she said, there has been heated discussion about what some say is unethical pricing behavior. Many agents are listing prices artificially low, seeking a wider pool of potential buyers they hope will bid the sale price up.
“These buyers are suckered into thinking they have a shot at something under a million dollars,” she said.
But as the summer months arrive, and the Bay Area fully reopens from pandemic lockdown, she and other foresee the markets slowing down a bit — and perhaps an increase in another market factor: buyer fatigue.
Home-seekers who have been writing offer letter after offer letter only to lose out on a purchase are likely to find something else to do, Macpherson said. And that is likely to make agents a little less certain about how they price homes.