Listing Prices Are Like an Auction’s Reserve Price

For generations, the process of buying and selling a home has never really changed.

A homeowner and their real estate professional would estimate the market value of the house, then tack on a little extra for some negotiating room. That figure would become the listing price. 

Buyers would then try to determine how much less than the full price they could offer and still get the home.

As a result, the listing price was generally the ceiling of the negotiation. The actual sales price would almost always be somewhat lower than what was listed. It was unthinkable to pay more than what the seller was asking.

Today is different.

The record-low supply of homes for sale coupled with very strong buyer demand is leading to a rise in bidding wars on many homes. Because of this, homes today are selling for more than the list price. In some cases, they sell for a lot more.

According to Lawrence Yun, Chief Economist at the National Association of Realtors (NAR): “For every listing there are 5.1 offers. Half of the homes (nationally) are being sold for above list price.”

You may need to change the way you look at the asking price of a home.

In this market, you likely can’t shop for a home with the former approach of negotiating to a lower price.

Due to the low supply, many homes are now being offered in an auction-like atmosphere in which the highest bidder wins the home. In an actual auction, the seller of an item agrees to take the highest bid, and many sellers set a reserve price on the item they’re selling. A reserve price is the minimum amount a seller will accept as the winning bid.

When navigating a competitive housing market, think of the list price of the house as the reserve price at an auction. It’s the minimum the seller will accept in many cases.

So, if you really love a home, know that it may ultimately sell for more than the sellers are asking.

We have found that in working with buyers that there is an education process to this new way of thinking. Just last week, a new buyer was honestly shocked that their offer of $5,000 over asking price was the lowest of five bids. Their offer for the next home that they bid on was much more in line with the new pricing reality. We’re still waiting to hear if they were successful, but these buyers learned quickly. Sometimes others lose out on a few homes before they adjust.

Remember: someone like good old Uncle Harry who “knows a little something about real estate” may be telling you that it’s foolish to offer more for a home than the listing price. But, he’s more familiar with the housing market of the past than that of today

Frequent and competitive bidding wars are creating an auction-like atmosphere in many real estate transactions right now. Let’s connect today at 508-568-8191or [email protected] so we can provide you with the best advice on how to make a competitive offer on a home.

Don’t wish for it; go for it!

Mari and Hank