Houses Are Selling For More Than Asking Price

In some competitive markets like San Jose and Seattle, over half of 2017 home sales exceeded the list price. Nationwide, sellers who received more than list price benefited by an average of 3.1% of the sale price. In the San Jose market, the average difference between listing and selling price was $62,000 – the highest number in the 100 metropolitan areas that Zillow studied.

Why are home sales increasingly providing windfalls to sellers? Factors include relatively low interest rates and a strengthening economy that keeps demand relatively high – but the primary factor is a critical shortage of homes, especially in the starter home market.

A relatively balanced market should have approximately six month's supply of homes available for sale. As of 2017, available inventory was at a 3.4-month supply – and that was an increase over the 3.2-month mark in December, a supply crunch that hasn't been seen since 1999. The year-over-year supply of available homes has decreased for 32 straight months.

While home sellers are reaping the benefits, homebuyers who are unprepared for the competition are feeling the pain. "One of the things that people don't think about when they buy their first home is getting into a bidding auction," says Jordan Goodman, the personal finance author known as America's Money Answers Man. "You have to go in there knowing the maximum you can spend for your budget ... do not get sucked into a bidding war."

Take your budget into account as you sift through your home buying options. With today's market, you may have to build an offset into your search and search for homes that are a bit below your budget – or at least have an alternate home as a backup plan in case your preferred home is out of financial reach. As Goodman advises, resist the urge to overspend.

In these market conditions, it may take you longer to find a house to your liking that avoids a bidding war. Zillow data suggests that buyers typically spend just over four months on average searching for a home to buy. With fierce competition for homes, you should hope for a shorter search but plan for a longer one.

Regardless of which side of the housing transaction you are on, preparation is key.

If you are a seller, you should have leverage – but know the local market trends and how your home stacks up with similar homes in your market. While one-quarter of home sales may have exceeded expectations, almost two-thirds of homes sold for less than list price, with an average buyer's discount of $14,800. Only 10% of homes sold for the exact asking price.

If you are on the buying side, make sure you have put together a realistic budget with as much down payment as you can afford and keep your finances in order. Avoid excessive debt and keep your credit score high to receive the best interest rate possible.

While interest rates are still low in historical terms, they are expected to rise throughout 2018. The home supply is not likely to get substantially better in 2018. Both factors suggest continued high demand and low supply throughout 2018. Expect a buyer's market, and be ready for it.