Greg King

Greg King

Realtor ®
S.0070665.LLC

In Today’s Market, Listing Prices Are Like an Auction’s Reserve Price

By G.King - July 26, 2021

In Today’s Market, Listing Prices Are Like an Auction’s Reserve Price

 

In Today’s Market, Listing Prices Are Like an Auction’s Reserve Price

 

For generations, the process of buying and selling a home never really changed. A homeowner would try to estimate the market value of their house, then tack on a little extra to give themselves 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 robust buyer demand leads to a rise in bidding wars on many homes. Because of this, homes today often sell 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 are being sold 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 negotiating approach to a lower price.

Due to the low supply of houses for sale, many homes are now being offered in an auction-like atmosphere where 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 a minimum amount a seller will accept as the winning bid.

When navigating a competitive housing market, think of the house's list price as the reserve price at an auction. It’s the minimum the seller will accept in many cases. Today, the asking price is often becoming the floor of the negotiation rather than the ceiling. Therefore, if you really love a home, know that it may ultimately sell for more than the sellers ask. So, as you’re navigating the homebuying process, make sure you know your budget, know what you can afford, and work with a trusted advisor who can help you make all the right moves as you buy a home.

Bottom Line

Someone more familiar with the past housing market than that of today may think it’s not very smart to offer more for a home than the listing price. However, frequent and competitive bidding wars are creating an auction-like atmosphere in many real estate transactions right now. Contact a local real estate professional today so you have a trusted expert on your side to provide the best advice on making a competitive offer on a home.

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