Homebuyers in the D.C. metro continue to be willing to bid well over list price to get the home they want, and some may be letting emotions cloud their judgments.
Between Jan. 1 and Feb. 15, 93 properties in the D.C. metro have gone under contract for at least $100,000 over list price. That is 1.7% of all sales, according to Redfin.
Overpaying for a home, especially to the extreme, could blow past both the taxman’s assessed value and the lender’s appraised value. And that puts buyers at a short-term risk.
“I think there is always a chance that the market starts to slow down. And if you need to sell again — say you buy a home and thought you were going to stay in it for five years, but you end up changing jobs, or you lost your job, and you have to sell — you may end up in the situation where you lose money on the home,” said Redfin chief economist Daryl Fairweather.
The bank won’t lend a buyer more than the home appraises for, so if the contracted price is more than that, buyers are putting more of their savings at risk on top of their planned down payment.
But there are some buyers who are willing to take that risk; particularly investment buyers. And there are many of those in the D.C. area market.
“The investor market share has been rising for at least 10 years now, and it shot up right after the pandemic began. Investors have the cash to go above the asking price, and they don’t need to worry about financing contingencies, and I think this is one reason we are seeing more overbidding now,” Fairweather said.
Bidding wars among competing buyers, driven largely by record low inventory with more buyers chasing fewer homes, are contributing to repeated records for median selling prices.
In Feb., Redfin valued 11% of homes in the D.C. metro at $1 million or more, double what it was a year ago.
